Unemployment

A Decline in Self-Employment

Posted on Tuesday, December 14, 2010



The share of Americans working for themselves has fallen since the recovery began, according to the Labor Department.
The following chart, from Steven F. Hipple, an economist at the Bureau of Labor Statistics, shows the quarterly rates of self-employment over the last decade. The figure for the last quarter of 2010 is estimated from rates recorded in October and November.
Steven F. Hipple, Bureau of Labor Statistics Note that the vertical axis does not begin at zero to better show the change. Shaded areas represent recession as designated by the National Bureau of Economic Research.
Since the recession ended, the proportion of self-employed nonagricultural workers peaked at 10.6 percent in the last quarter of 2009. It has edged steadily downward since then, sitting at 10 percent in recent months.
It’s not clear why this might be the case.
To summarize what we’ve written before about this subject, two competing forces affect self-employment and entrepreneurship rates. One is opportunity: how much demand there is for the good or service your new company would offer. The other is opportunity cost: what you’d be giving up by starting a business.
When job opportunities at established companies are few and far between — as is the case now — starting a business can look more attractive. After all, you have less to give up by going at it alone. This force will encourage self-employment.
But on the flip side, demand for goods and services is still relatively weak, and credit is reportedly still hard to come by for small businesses. According to Robert W. Fairlie, a professor at the University of California, Santa Cruz, who has written extensively about the self-employed and entrepreneurship, the availability of credit is the “most important determinant” for the success of a small business. So these factors can discourage self-employment.
Fears about the environment for small businesses — such as what is happening with the new health care legislation or income tax rates — may also be affecting self-employment entrepreneurship rates.
By CATHERINE RAMPELL NYT


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