About the Report

Download Report

Individuals who lose their jobs may have the skills and desire to start their own businesses. Some states have taken action to help unemployed workers create their own jobs by establishing Self-Employment Assistance (SEA) programs, which allow Unemployment Insurance (UI) eligible individuals who meet SEA program requirements to receive a weekly self-employment allowance while they are setting up their businesses. This allowance is equal in amount and duration to regular UI benefits. SEA program participants are also exempted from actively seeking wage and salary jobs so they can devote their energies to self-employment activities while they receive SEA allowances. The SEA program was created in 1993 and permanently reauthorized in 1998. The program’s scope and funding were expanded and under the Middle Class Tax Relief and Job Creation Act of 2012, P.L. 112-96 (the Act). Section 2183(b)(2) of the Act required the Secretary of Labor to provide a report describing the operations and effectiveness of SEA programs to Congress by February 22, 2017. To help meet this legislative requirement, the U.S. Department of Labor (DOL) contracted with Mathematica Policy Research to conduct this study of the SEA program. The study focused on learning about states’ motivation for establishing SEA programs, states’ experiences with implementing it, and outcomes of SEA participants and their businesses. The report presents the study findings.

Research Questions

• Which states have participated in the SEA program?
• What is the context for SEA program decisions (program adoption, continuation, design) and operations?
• What are states’ experiences implementing the program?
• How is the program targeted?
• How does the SEA program recruit and admit participants?
• What benefits, services, and supports does the SEA program offer program participants?
• How do SEA programs track participants and monitor outcomes?
• What are the rates of program application, acceptance, and take-up among the target population?
• What are the characteristics of SEA program participants?
• What benefits and services do SEA program participants receive?
• What are SEA program participants’ rates of wage and salary employment and self-employment?
• What are SEA program participants’ wage and salary earnings?
• How many businesses are established by SEA participants?
• What are the characteristics of businesses established by SEA participants?
• How well are these businesses doing in terms of the number of employees they hire, their annual payrolls of wages paid to employees, and sustainability of the business over time?
• How much federal and state tax revenues were collected from businesses established through SEA?

Key Takeaways

• Program champions were instrumental in the establishment and maintenance of the program: they built support for the program among partners and within the state labor departments.
• States adapted elements from other states’ SEA programs to meet their own unique needs, and they also adapted their programs over time.
• Because state SEA staff lacked expertise in small business development, they drew heavily on the expertise of partners such as Small Business Development Centers (SBDCs).
• On a per-person basis, state staff thought they expended more resources to serve SEA participants than regular UI recipients.
• States typically added state-specific eligibility requirements to supplement federally mandated requirements.
• SEA staff questioned the usefulness of the federally-mandated requirement that SEA participants be identified as likely to exhaust benefits because it may screen potential SEA participants who could be successful in the program.
• In states that evaluate the feasibility of the applicant’s business idea as part of the application process, SEA program staff collaborate with partners with expertise in such assessments.
• SEA staff prefer targeted outreach to broad program promotion because it enables them to pique program interest only among individuals likely to be eligible for the SEA program.
• SEA staff expose potential participants to the program’s expectations and the challenges of establishing a business prior to accepting applicants into the program to ensure that participants make well-informed decisions about their participation.
• All states require SEA participants to work full time on establishing their business and certify regularly that they are meeting program requirements.
• Some states prescribe specific activities to SEA participants; others have more self-directed programs, in which participants more independently chart their own path to launching their business.
• SEA programs typically rely on partners to provide important business development supports, including counseling, mentoring, or training, to program participants.
• The breadth and intensity of SEA services and supports offered in study states often changed over time, usually in response to fluctuations in available funding.
• Because of the relatively small number of individuals involved, tracking SEA program participation was often a time-consuming manual process.
• States had different interpretations of DOL reporting requirements, including whether to report on their outcomes during program participation or afterwards as well; these interpretations influenced their approach to collecting outcome data.
• States’ use of different data sources for reporting to DOL, variation in the data collected through surveys, and low response rates for SEA program surveys raise concerns about the quality and comparability of SEA program data across states.
• Between January 2013 and June 2015, a very small proportion of UI recipients applied for the SEA program in either state (0.3 percent in New York and 1.0 percent in Oregon). SEA program participants differed significantly from comparable UI recipients in their demographic characteristics and previous labor market experiences. For example, SEA participants were on average older, less likely to identify themselves as Hispanic, and more likely to have worked in professional, scientific, and technical services and management in their previous job. In both states, SEA program participants had larger benefit entitlements, on average, than the comparison group—mainly because they had higher base period wages.
• On average, SEA program participants in New York and Oregon claimed about 23 weeks of benefits. In contrast, the comparison group of UI recipients in these states claimed 14 to 20 weeks of benefits, on average. SEA program participants also collected significantly more money in benefits, on average, than the comparison group of UI recipients. This was partly because they were entitled to higher weekly benefit amounts, on average, but also because they collected benefits for more weeks on average—potentially because it takes longer to establish a successful business than to find wage and salary employment. In the quarters after filing an initial claim, SEA program participants had consistently lower rates of wage and salary employment and earnings from such employment than the comparison group, which might be expected since SEA participants are likely to focus on establishing their businesses instead of pursuing wage and salary employment.
• Fewer than one-third of New York SEA participants who responded to a state-administered survey reported that their business was operating at any point in the first four quarters after they enrolled in the program. In New York, average gross and net revenues, the number of non-owner employees, and the wages paid to those employees were all substantially higher for SEA establishments that were operating in the fourth quarter, compared to SEA establishments that were operating in the first quarter after participation began. Among individuals who reported operating a business in the first quarter after being approved for the SEA program, 40 percent were still operating a business three quarters later. A tax revenue analysis suggests that, in 2014, the SEA program in New York generated $536,937 in federal income taxes and $140,136 in state income taxes.

Citation

Weigensberg, E., Needels, K., Gould-Werth, A., Patnaik, A., Lee, J. (2017). Mathematica. A Study of the Self-Employment Assistance Program: Helping Unemployed Workers Pursue Self-Employment. Chief Evaluation Office, U.S. Department of Labor.

Download Report

The Department of Labor’s (DOL) Chief Evaluation Office (CEO) sponsors independent evaluations and research, primarily conducted by external, third-party contractors in accordance with the Department of Labor Evaluation Policy and CEO’s research development process.