October 31, 2014

CHART OF THE WEEK: The Fall of Lehman Brothers and Incorporated Self-Employment

Susan Woodward of Sand Hill Econometrics recently told me that the decline in the number of people who work for themselves in incorporated businesses over the last couple of years was worse than I described previously (Have We Lost a Generation of Small Business Owners?). She explained that the number of incorporated self-employed dropped a whopping 16 percent from the peak in August 2008 through March 2011 if you adjust the Bureau of Labor Statistics’ figures for seasonality.  After making that adjustment she finds that 948,000 self-employed heads of corporations disappeared from the economy.

Interestingly, Woodward’s figures indicate that the decline in incorporated self-employment began at a very different point from the decrease in unincorporated self-employment.  Unincorporated self-employment peaked in December 2006, about the same time that consumption of consumer durables started to decline in places where households were highly leveraged.  By contrast, as the figure below shows, incorporated self-employment reached its peak in August 2008, just before Lehman Brothers went under.

Thus, incorporated self-employment rose for three quarters of a year after the National Bureau of Economic Research said the Great Recession was underway and has continued to decline for one and three quarters years since the NBER said the Great Recession was over.  Moreover, unlike other economic indicators, the number of incorporated self-employed has yet to recover.

Decline in incorporated self-employment 2004-2011 Click for larger image

Incorporated self-employment, seasonally adjusted, 2004-2011

1 Comment ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

One Reaction

  1. Do you have a hypothesis for why this might be happening?

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