Toward a Self Employed Nation?

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The United States labor market has been undergoing a substantial shift toward small-scale entrepreneurship. The number of proprietors – owners of businesses who are not wage and salary employees, has skyrocketed, especially in the last decade. Proprietors are self employed business owners who use Internal Revenue Service Schedule C to file their federal income tax. Wage and salary workers are all employees of any establishment (private or government), from executives to non-supervisory workers.

From 2000 to 2011, the number of non-farm proprietors grew by 10.7 million. Total wage and salary employment grew by only 105,000 between 2000 and 2011. Government employment, including federal, state and local, grew 1.36 million, while private employment declined by 1.26 million (Figure 1).

As a result, 99 percent of the total increase in employment from 2000 to 2011 was in the self-employed, according to Bureau of Economic Analysis of the United States Department of Commerce data. By comparison, during the 1990s, self employment accounted for only 22 percent of the increase in jobs nationally (Figure 2). The economic impact of the increase in self employment may be less, however, than its gross numbers, because many of the self employed are also engaged in wage and salary employment (Note).

Self Employment Gains in the Great Recession

Perhaps most striking is the fact that the number of entrepreneurs continued to grow in the Great Recession and what might be called the continuing Great Malaise. From 2007 to 2011, there was an increase of 1.8 million proprietors. This annual growth of nearly 450,000 was more modest than between 2000 and 2007, when the average number of proprietors grew 1.28 million, nearly three times as fast. The continuing growth in proprietors starkly contrasts with the loss of 5.9 million in private sector jobs. Government employment grew 44,000.

A Longer Term Trend

The data from 2000 to 2011 indicates an acceleration of an already developing trend of greater self employment, which can be traced back to at least 1970 (the earliest data readily available). In 1970, proprietors were 11.0 percent of employment, a figure that rose to 15.6 percent by 2000. The greatest increase occurred after 2000, when the number of proprietors increased 42 percent. In 2011, proprietors represented 21 percent of employment, nearly double their proportion in 1970 (Figure 3).

This increase in proprietors (and their generally smaller commercial establishments) tracks with the continuing decline in average establishment size (Figure 4). United States Bureau of Labor Statistics data shows that between 2002 and 2012, there was a loss of 2.3 million private jobs in establishments with 100 or more employees. Establishments with 500 or more employees experienced a reduction of 1.8 million jobs, 80 percent of the large establishment (100 and over) losses. These losses were nearly made up by gains in establishments with under 100 employees (2.1 million).

State Self Employment Trends

Self employment added the largest number of jobs in 40 states between 2000 and 2011 (Table). Its percentage increase exceeded both those of private and government employment in all but two states (North Dakota and Alaska)

Texas added the largest number of proprietors between 2000 and 2011. The Lone Star state added 1.26 million proprietors. Florida ranked second, added 970,000 proprietors, followed by California with 940,000. New York with its long laggard economic growth , added 820,000 proprietors. Georgia ranked 5th, adding 540,000. The next five included fast growing North Carolina (8th), as well as slower growing New Jersey, Illinois, Pennsylvania and Michigan (yes, Michigan).

The story, however, was much different among these states in wage and salary employment. Texas, with the nation’s most vibrant and business friendly big state economy (according to chiefexecutive.net), added 1.22 million wage and salary jobs, 960,000 of which were in the private sector. Florida did somewhat worse, adding only 201,000 jobs, 113,000 in the private sector. California lost 480,000 private sector jobs, while adding 62,000 government jobs. Public and government employment changed little in New York. Georgia lost 131,000 private jobs, while adding 87,000 to government payrolls, while New Jersey and Illinois suffered private sector losses of 155,000 and 355,000 respectively (Figure 5 and Table).






EMPLOYMENT CHANGE BY TYPE OF JOB: 2000-2011
Wage & Salary Employment Total Employment
  Private Government Total Proprietors
Alabama            (69,050)          22,297        (46,753)          154,522           107,769
Alaska             39,839          12,355         52,194             9,621             61,815
Arizona            126,805          51,509       178,314          245,934           424,248
Arkansas              (8,806)          27,902         19,096           47,141             66,237
California           (479,691)          62,143      (417,548)          941,071           523,523
Colorado              (8,740)          70,077         61,337          209,084           270,421
Connecticut            (64,857)            3,022        (61,835)          168,636           106,801
Delaware            (11,550)            6,597         (4,953)           35,349             30,396
District of Columbia             46,402          27,180         73,582           29,288           102,870
Florida            113,353          88,063       201,416          968,006        1,169,422
Georgia           (131,337)          87,525        (43,812)          537,451           493,639
Hawaii             33,157          17,126         50,283           35,638             85,921
Idaho             37,459            8,327         45,786           54,325           100,111
Illinois           (354,730)           (5,481)      (360,211)          374,270             14,059
Indiana           (180,865)          18,415      (162,450)          105,068            (57,382)
Iowa             10,472          11,440         21,912           49,320             71,232
Kansas            (17,794)          21,022          3,228           74,747             77,975
Kentucky            (48,771)          39,826         (8,945)           86,259             77,314
Louisiana               8,380         (16,543)         (8,163)          219,700           211,537
Maine            (11,858)            1,060        (10,798)           23,994             13,196
Maryland             28,580          54,102         82,682          249,229           331,911
Massachusetts            (96,684)           (4,699)      (101,383)          211,607           110,224
Michigan           (666,239)         (66,184)      (732,423)          294,215          (438,208)
Minnesota              (3,680)            6,886          3,206          155,151           158,357
Mississippi            (64,479)            5,696        (58,783)           87,067             28,284
Missouri           (107,603)          12,903        (94,700)          138,189             43,489
Montana             38,149            7,163         45,312           31,068             76,380
Nebraska             15,922          12,470         28,392           42,849             71,241
Nevada             75,814          35,526       111,340          136,382           247,722
New Hampshire              (7,892)            9,275          1,383           41,525             42,908
New Jersey           (155,108)          21,622      (133,486)          405,353           271,867
New Mexico             48,017          11,506         59,523           37,120             96,643
New York               2,427           (5,997)         (3,570)          818,861           815,291
North Carolina            (58,042)        121,486         63,444          329,109           392,553
North Dakota             65,306            7,595         72,901           15,776             88,677
Ohio           (514,436)           (5,380)      (519,816)          277,931          (241,885)
Oklahoma             28,310          41,462         69,772          106,262           176,034
Oregon             19,047          16,878         35,925           95,406           131,331
Pennsylvania            (11,087)          17,678          6,591          310,306           316,897
Rhode Island            (15,349)           (4,281)        (19,630)           29,356              9,726
South Carolina            (42,912)            9,998        (32,914)          242,447           209,533
South Dakota             28,301            7,155         35,456           20,290             55,746
Tennessee            (84,441)          33,905        (50,536)          196,021           145,485
Texas            956,988        264,871    1,221,859       1,255,773        2,477,632
Utah            109,728          33,864       143,592          137,781           281,373
Vermont              (4,419)            4,179            (240)           21,467             21,227
Virginia             90,766          64,639       155,405          282,009           437,414
Washington             77,224          62,267       139,491          170,512           310,003
West Virginia               8,796            9,736         18,532           20,765             39,297
Wisconsin            (81,794)          13,783        (68,011)          148,572             80,561
Wyoming             33,972          10,034         44,006           21,077             65,083
United States        (1,259,000)     1,364,000       105,000     10,698,900      10,803,900


The Future?

Robert Fairlie, one of the nation’s leading experts on self-employment and a professor at the University of California, Santa Cruz, associates much of the increase in proprietors during the Great Recession to higher unemployment rates, measured at the local level. This is consistent with the rise in self employment during the Great Recession and the huge wage and salary job losses. At the same time, the larger increases in the decade before the Great Recession may indicate a strong underlying trend toward self employment. Certainly, this is supported by the rise of the Internet, which provides cheaper access to information and more comprehensive marketing opportunities.

The future could see stronger self employment gains. As the baby boom generation reaches retirement age, it is likely that many former employees will turn to self employment to increase their incomes.

Finally, the increasing global competitiveness could continue to reduce establishment sizes and encourage greater self employment. Stronger business regulation, including the mandates of the new medical care system ("Obamacare") could result in stunted employment growth, or even losses, forcing more people into self-employment even if they continue to work with current employers as contractors.

America may not become a "nation of shopkeepers," like 19th century Britain, but is   increasingly becoming a self-employed nation. It will be challenging for governments, both at the national and local level to develop regulatory and tax structures that encourages this entrepreneurial expression, and perhaps more problematic, figure out to aid their conversion into larger businesses.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.

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Note: This article uses Bureau of Economic Analysis employment counts --- the number of jobs, rather than employees (an employee may have more than one job). The database in this analysis includes full and part time employment. Last year's Forbes article used a different database, limited to people who make their livings principally from self employment.

Self employment photo by BigStockPhoto.com.



















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Solo Entrepreneurs on the Rise

We took a thorough look at this trend in the recent Enterprising States report for the US Chamber of Commerce, subtitled Getting Down to Small Business. Below is an excerpt and here is the link; http://www.freeenterprise.com/enterprisingstates

The rate of new business creation has dipped recently and many more startup founders are flying solo as “jobless entrepreneurs,” choosing not to employ others. According to the Census Bureau, small business without payroll makes up more than 70 percent of America’s 27 million companies, with annual sales of $887 billion.

The virtual company model eschews employees since they, along with brick-and-mortar obligations, are viewed as costs that are not readily controllable and could create unnecessary legal exposure for a company. This contractor/consultant structure is particularly suited to early-stage startup-companies working on new technologies in need of high skill expertise.

Many solo entrepreneurs are not involved in technology-based ventures but want to forego the hiring headaches, managing problems, and added paperwork of running a business with employees. Oftentimes referred to as “free agents,“ lone eagles,” or “empires of one” these entrepreneurs can operate in a low-cost location such as the home office and can take advantage of outsourcing most functions while focusing on their core strengths.

The solo entrepreneur model is appealing to people leaving behind careers at big companies and for many retiring or downshifting baby boomers wanting to stay active but autonomous. The solo entrepreneur model is often considered to be primarily a lifestyle choice so it does not garner widespread interest or resources from the professional economic development community.

Texas, with the nation’s

Texas, with the nation’s most vibrant and business friendly big state economy . . .

I always shrink at the word vibrant. As a long-time self-employed person myself I will make two comments. First, like all business start-ups, sole proprietorships and partnerships fail more often than they succeed. Many people try them anyways because the alternatives are so poor. And second, many shady employers force their workers to work as sham private contractors as a way to skirt wage-and-hour laws. You need to correct for that.

Luke Lea

Low cost local economy is advantageous though

I do think it is true, though, that lower local costs (housing, taxes) lead to increased discretionary income in the local economy, and this effect compounds as money circulates.

Therefore, there is probably more opportunity, more startups, and a greater rate of survival of startups in a low-cost economy.

Instead of taking in other's laundry, we're doing our own?

Are we witnessing the pinnacle of the service economy?

Or does this represent an explosion of individual creativity and entrepreneurship - enabled by the variety of new electronic and software tools that can multiply human productivity?

I'm hoping its the latter, not the former.