It was recently announced that the unemployment rate dropped in March, hitting its lowest number in over two years. Many economists and analysts cheered at this news, claiming that it was another important milestone in the economic recovery that is perceived to be taking place. But for the millions of Americans who are facing unemployment, those claims of recovery seem a bit far-fetched. This is especially true for hard-hit California, where the job market has been especially slow to show signs of recovery.

According to a new paper that was recently issued by a branch of the Federal Reserve, the stagnant California job market has less to do with lay-offs and more to do with business formation. The paper states that there has been a significant decrease in the number of new businesses that have been formed during the recession years, and argues that this needs to be a focus before the job market, and the economy, will truly improve.

In 2009, the report states, there were almost 116,000 fewer employer businesses founded than in 2007, which is a 17.3 percent decrease. In combination, almost 67,000 more business closed in 2009 than in 2007, an 11.6 percent increase. These two factors undoubtedly contributed to the record high unemployment rate that was a constant during these years, as economists cite the level of entrepreneurial activity as one of the gauges of the country's economic state.

This slowdown of business formation is not unique to the United States. Countries around the world have reported similar drops in new businesses, contributing to the world-wide recession.

Source: New York Times, "A Decline in American Entrepreneurship", Catherine Rampell, 31 March 2011