The unemployment rate in the United States is at a four-year low, but another labor stat is shrinking in not such a favorable way: a decline in the number of self-employed Americans suggests the personal business will soon be a thing of the past.
Since the Great Depression, the number of Americans who identify themselves in the work force as “self-employed as a share of non-farm employment” has been getting smaller. Some economists now say though that the major US recession that started in 2007 will soon send that stat straight down to zero.
The number of self-employed Americans at the end of World War II was roughly one-quarter of the country’s population, but during the length of just the 1960s that section shrank from nearly 20 percent to being barely in the double digits. From the 1970s through the first half of the ‘90s that rate stayed constant, but since just before the start of this century the stats have been smaller than ever. That figure is continuing to decrease, and the result is a major drop in the number of self-employed workers due to the recent recession is ravaging what was once a viable way of making a living.
Although the proportion of self-employed workers has been shrinking during the last few decades, the sheer number of workers who identify as such dropped drastically as a result of the recession — all the while, of course, the population of the country as a whole got larger.
Chosen excerpts by Job Market Monitor
‘Self-employment continues to be an important source of jobs in the United States’ writes Steven F. Hipple in Self-employment in the United States in the Monthly Labor Review (Adapted chosen excerpts by Job Market Monitor to follow).
In 2009, 15.3 million individuals were self-employed, including both those who had incorporated their businesses and those who had not.The self- employment rate, which is the proportion of total employment made up of the self- employed, was 10.9 percent. Of all self-em- ployed persons, 9.8 million, or nearly two- thirds, were unincorporated; the remaining 5.5 million were incorporated. From 2003 to 2009, the total self-employment rate has held steady; a small decline in the unincor- porated self-employment rate was partially offset by a similar rise in the rate of incor- porated self-employment.
Trends in self-employment
The proportion of total employment made up of the unincor- porated self-employed has fallen gradually since 1967. The secular decrease in un- incorporated self-employment is due primarily to two reasons. The first, and chief, reason is the well-known decline in agricultural employment, a dropoff in an industry in which a large share of employment is made up of the self-employed. At the same time, there also has been a steady decrease in the agricultural self-employment rate since 1967. The decrease in self-employment in agriculture is due mainly to a decline in the number of smaller farms and the emergence of large farming operations.
A second reason is an increase in the likelihood of businesses to incorporate. Self-employed workers typically incorporate their businesses in order to receive traditional benefits of the corporate structure, including limited liability, tax considerations, and the enhanced opportunity to raise capital through the sale of stocks and bonds. From 1994 to 2009, the unincorporated self-employed’s share of nonagricultural employment declined slightly.
Over the same period, the proportion of nonfarm employment made up of the incorporated self-employed edged up from 3.4 percent to 3.9 percent.
Incorporated self-employed. As mentioned previously, in most of the CPS tabulations of class-of-worker categories, the incorporated self-employed are included as wage and salary workers. The share of total employment made up of the incorporated self-em- ployed was about unchanged, at 2.9 percent to 3.0 percent, during 1989–93. Then, the implementation of the redesign of the CPS in 1994 affected the measurement of incorpora- tion, and the proportion rose to 3.5 percent that year. Following that, over the 1995–2002 period the incorporated self-employment rate ranged between 3.2 percent and 3.4 percent. Finally, from 2003 to 2009, the incorporated self- employed’s share of employment edged up, from 3.6 percent to 3.9 percent of total employment. In agricultural indus- tries in 2009, the incorporated self-employment rate was 7.2 percent, compared with a much larger 39.8 percent for the unincorporated self-employed.
Self-employment during recessions
In general, during labor market downturns labor force groups are hit hard and experience a decline in employment.This procyclical response certainly affects many of the self-employed, whose businesses fail as revenues fall or dis- appear altogether. At the same time, measures such as un- employment and involuntary part-time employment have always increased during recessions. Hence, a competing countercyclical effect could result in a rise in self-employment if laid-off wage and salary workers start businesses for themselves. The total number of self-employed workers (unincorporated and incorporated combined) in nonagricultural industries declined, on net, by about 760,000, from 15.0 million in the fourth quarter of 2007 to 14.2 million in the second quarter of 2009.7 As chart 2 shows, the total nonagricultural self-employment rate, 10.1 percent in the second quarter of 2010, has edged down recently.
With regard to educational attainment, unincorporated self-employment rates were lowest for individuals with an associate’s degree (6.6 percent) and highest for those with less than a high school diploma (9.9 percent). In occupations held by workers with less than a high school diploma, unincorporated self-employment rates were highest for management occupations (mostly farmers and ranchers), personal care and service occupations, and construction and extraction occupations.
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