Readers Sound Off on Payroll Survey

Aren't you downgrading the importance of new businesses? America has grown through the entrepreneurial talents of its citizens. Aren't you underestimating the impact of new firms?

New businesses are an important source of innovation for the American economy. The long-term impact of start-ups on the U.S. cannot be overstated. It is an enormous resource, and a huge advantage we enjoy over other economies, such as Japan's. But that's not what these surveys are seeking to measure. Rather, the surveys are looking for the impact of employed persons and their spending habits on the U.S. economy in the short term -- meaning months, rather than years.

The importance of new job creation -- especially to the stock or bond investor -- is that a person earning a regular, reliable income can budget to buy large ticket items -- homes, autos, durable goods. They can buy these things on credit, and get approved for a mortgage. And these are good things that we all do to stimulate the economy. That's why the establishment survey is so crucial. This data series provides a better estimate of consumer spending.

Add to that the simple reality that a huge percentage of new businesses fail in the first two years and you can see why people starting out in new firms -- the ones some insist are being counted by the household survey but not by payroll -- have a different impact on the overall economy.

Speaking generally, the impact an employee at a start-up has on the overall economy tends to be smaller than someone doing a similar job at an established firm with a regular salary. Even if it's not a higher salary, the virtue of knowing what your income will be is significant because, as noted above, you can budget and spend accordingly. As someone who has worked at start-ups in the past, I can tell you as a matter of fact that it's no fun applying for a mortgage without a salary history.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].