According to a new Labor Department report, fewer entrepreneurs are starting new businesses, dimming prospects for growth in employment.

The Wall Street Journal reports that in the early stages of the national economic recovery, more businesses are closing than opening. However, new business entities generated a seasonally adjusted total of 2.6 million jobs in the three quarters that ended this past March.

While that’s good news, it’s leavened with a sobering statistic: that number of jobs is 15 percent lower than in the first three quarters of the previous economic recovery following the dotcom bust.

Economists quoted in the Journal article make it clear that start-ups are the single most important generators of new jobs. New businesses also propel gains in productivity and technology that in the long term raise everyone’s standard of living.

Without new businesses, the economists say, employment would stagnate.

The Journal’s reporters describe a typical San Diego entrepreneur struggling to find start-up capital for a new venture. The man has an idea for an innovative wireless electrical system that could help businesses, schools and others dramatically decrease their electrical bills.

Without financing, however, his start-up has yet to hire a single employee. Potential investors want to see a prototype before sinking money into the wireless system. He says the prototype would cost him $200,000; money he simply doesn’t have.

Contrast that picture with his last formation of a business, back in 2002: that company obtained about $1 million from investors. He and his five employees were up and running in offices overlooking downtown San Diego.

That entrepreneur is ready to roll again, but without angel investors on his side, he can’t hire anyone at this point.

Source: Wall Street Journal: “Few Businesses Sprout, With Even Fewer Jobs”: November 18, 2010