Based on the interest in my post about estimates of entrepreneurial job creation, I would like to explain how I calculate these numbers. My analysis is debatable, but I will outline the assumptions behind my figures so you can decide for yourself.

There are four key assumptions to calculate the job creation numbers: (1) the amount of money it takes to motivate someone to begin the entrepreneurial process, (2) the percentage of people that begin the entrepreneurial process who create a business, (3) the percentage of newly created businesses that employ anyone (employer firms), and (4) the number of employees in the average new employer firm.

Assumption No. 1

Surveys of entrepreneurs consistently reveal that the biggest deterrent to starting a company is lack of capital; and natural experiments in which people receive random financial windfalls from lottery winnings show that an unexpected capital infusion encourages people to start businesses. So, to get people to start the entrepreneurial process, we need to overcome their lack of capital.

A representative survey of new business start-up efforts in the United States indicates that the typical (median) entrepreneur needs $15,000 to pursue a new business idea and can provide $6,000. Therefore, we need to give the typical person $9,000 to overcome this capital gap so he or she can start a business.

Assumption No. 2

The same survey shows that about one-third of people who begin the process end up with an “up-and-running” business within six years.

Assumption No. 3

About one in five new businesses has employees. The survey indicated that 18.5 percent of the entrepreneurial efforts tracked had filed for state unemployment insurance and 19.2 percent had filed for Federal Insurance Contributions Act taxes, two indicators that a business is an employer firm.

These percentages are consistent with United States Census data, which indicate that, at a point in time, only 24 percent of businesses are employer firms. (Because employer firms are more likely than nonemployer firms to survive over time, one should have a slightly higher percentage of surviving firms that are employer firms.)

Assumption No. 4

Data from the Small Business Administration’s Web site reveal that the average number of employees in a new employer firm is 5.6.

(This is lower than the estimate that comes from the data on the Business Dynamics statistics Web site of the Census Department, which indicate that the average number of employees in a new establishment is 6.51. New establishments, however, don’t include only new firms; they also include new locations of existing businesses, like the addition of a new fast-food outlet.

Moreover, the Bureau of Labor Statistics’ estimate of the average number of employees per new establishment was 4.3 in the third quarter of 2008, putting the S.B.A. new employer firm number right in the middle of the two figures for new establishments.)

Creating an Employer Firm

Multiplying the percentage of people who start the entrepreneurial process and create a viable business by the percentage of new businesses that file for unemployment insurance or F.I.C.A., we find that it takes 15.8 to 16.4 people who begin the start-up process to get one new employer firm.

This estimate is similar to that of Paul Reynolds, the lead researcher on the study that generated these data, who says “it may take 15 active nascent entrepreneurs to generate one firm with employees.”

Cost Per Job

Multiplying the 5.6 employees in the average new employer firm by the average of the percentage of businesses that have filed for unemployment insurance and F.I.C.A. (18.9) and the percentage of start-up efforts that become businesses (33), we get an estimate of 0.35 jobs created per person who begins the start-up process. At a cost of $9,000 to encourage a person to begin the start-up process, we get a cost of $25,603 per job through efforts to encourage people to become entrepreneurs.

The S.B.A.’s estimate of 5.6 employees per new employer firm is higher than the estimate of 4.6 employees per new employer firm reported by the Kauffman Firm Survey. If we use that number of employees per new employer firm, we would get a cost per job of $31,169.

Returning to Prerecession Employment Levels

The United States economy is currently down 8.8 million jobs from the number necessary to have the prerecession rate of employment, given estimates of the number of jobs lost and job creation necessary to keep up with population growth (based on the Economic Policy Institute’s methodology for calculating these numbers). If we multiply the cost per job by the number of jobs we need, we get an estimate of $225.3 billion to get us back to prerecession employment levels by encouraging people to become entrepreneurs.

My estimates could be wrong. But I think that $225.3 billion is closer to the true cost of getting us back to prerecession employment levels by encouraging entrepreneurship than the $3.1 billion (or $3.3 billion if we include the June job loss numbers) that comes from other estimates.

Scott A. Shane is a professor of entrepreneurial studies at Case Western.