May 29, 2016

Non-Employers Growing: A Concern?


solopreneur at desk

The Census Bureau recently released its preliminary figures from the Survey of Business Owners (SBO) — the statistical agency’s twice-a-decade snapshot of the status of American businesses.

Census Bureau Survey of Business Owners

The numbers do not tell a pretty picture about America’s small business sector. Both employment and real sales at the average American business declined between 2007 and 2015.

While there are a limited number of conclusions that can be drawn from preliminary data released by the Census (both because the figures are subject to revision and because the statistical agency has, to date, only made public a small portion of the SBO’s results), one conclusion is clear: The declining tendency of American small business owners to employ other people has led the average company to shrink both in terms of numbers of workers and amount of sales.

The fraction of businesses with employees shrank over the five year period, causing the number of people working at the average American company to fall.

Between 2007 and 2012, the share of American companies with paid employees declined from 21.2 percent of all U.S. businesses to 19.6 percent. The number of employees at the average American company declined from 4.3 in 2007 to 4.2 in 2012.

More importantly, this decline in employment can be attributed to the shrinking fraction of companies with paid employees. The average number of workers at employer businesses actually rose from 20.5 people in 2007 to 21.3 in 2012.

Real sales at the average business decreased over the half decade examined.

In 2007, the average American company had $1,230,395 in sales (when measured in 2012 dollars). In 2012, the average U.S. business had sales of $1,213,949. Like the decline in employment, this fall in sales can be attributed to the rising fraction of U.S. companies without paid employees. The average sales at a non-employer business in 2007 was $50,553 (when measured in 2012 dollars).

Five years later, mean revenues at those businesses had shrunk to $47,679. At employer businesses, however, the opposite trend occurred. In 2007, the average U.S. business with paid employees had $5,623,738 in annual revenues (in 2012 dollars). In 2012, the mean receipts of a U.S. employer had reached $5,987,479.

I have long argued that the number of non-employer businesses is not an indicator of America’s entrepreneurial performance. The 2007 and 2012 SBO data confirms this view.

The relative growth of companies without employees that this country has experienced between 2007 and 2012 is associated with declining average real revenues and average employment in the small business sector.

Solopreneur Photo via Shutterstock

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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.

3 Reactions

  1. When you have billion-dollar companies like Uber whose entire business model relies on their ability to classify drivers as contractors and NOT employees, you can see how the regulations & financial penalties of employees has gone too far. The government needs to make it easier on businesses to employ people and the first place to start would be fewer restrictions on businesses that employ fewer than 10 people (or pick a smallish number of your choosing).

  2. I think that technology has opened many doors to many unconventional businesses that have no need for employees. And if they even need people, they need them for only a few tasks.

  3. I think this trend makes total sense when you look at the growing number of freelancers who are sick of the corporate world, the pressures on small businesses that make it hard to employee new people, and the global market which makes it easy to hire the skills you need through contractors.

    In my business, I felt like the regulations were punishing me for hiring people. I’m very reluctant to hire again.

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