Is the Gig Up in Los Angeles?

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Los Angeles is famous for more than its status as an entertainment mecca.

The city’s small-business, entrepreneurial spirit is alive and well, with an estimated 244,000 mostly small businesses. Startups have flourished, as 231 new L.A. firms raised $4.2 billion last year, up 38 percent from 2015.

It is this entrepreneurial spirit that keeps us charging ahead in good economic times – and motivated in hard times.

Many observers speculated that the gig economy – generally founded on short-term employment opportunities –would be a driver for innovation. This view entailed ambitious millennials taking brief contracts or freelance work instead of permanent jobs.

Yet trends in demographics and employment indicate that the gig economy might nonetheless be at risk.

New unemployment data suggests the workforce is changing. Unemployment in Los Angeles is now near record low levels and wages are rising. Younger people are going back to the security of established jobs.

U.S. Census Bureau data shows about 75,000 more people left Los Angeles County than moved here from other places in 2016 – twice the rate of domestic migration five years ago. An examination of census data from Apartment List from November 2016 found the number of millennials living in Los Angeles dropped 7.4 percent from 2005 to 2015.

Los Angeles must pursue priorities and policies that inspire innovation and small-business growth in order to reverse those trends.

Here are three:

Encourage public policy that supports gig employees. Gig employment comes with flexibility and control but also is associated with lack of job security, lower pay and fewer benefits. Lawmakers need to enact common-sense legislation to ensure workers aren’t exploited while keeping the economic incentives for the continued growth of the gig economy. One example: Policymakers should be wary of any changes to the Affordable Care Act that will eliminate health care for individuals who cannot attain it through their jobs.

Promote small-business clusters and incubators. Incubators attract angel investors and venture capitalists, and offer various tangible resources for startups. The Los Angeles Cleantech Incubator in the Arts District of downtown is a private nonprofit organization that provides office space, CEO coaching, mentoring and other assets to sector startups. This model should be duplicated across other industries to support the growth of new businesses.

Create incentives for startups. Fledgling businesses need support. Los Angeles should develop numerous resources to help new business owners find incentives. Pepperdine University’s Graziadio business school introduced the Peate Institute for Entrepreneurship in December to help students launch and accelerate their new ventures while earning academic credit toward a master of science in entrepreneurship. The highly selective, one-year program provides full-tuition scholarships to 15 program participants annually, awarding academic credit for reaching startup milestones as students launch and grow their businesses.

August marks the 100th straight month of national economic expansion. Los Angeles looks to be well-positioned to thrive as Labor Day approaches, but we must foster entrepreneurialism, particularly when times are good.

David M. Smith, Ph.D., is associate professor of economics at Pepperdine University’s Graziadio School of Business and Management.

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