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Where Self-Employment Should be Strong over the Coming Eight Years

People often ask me to predict the sectors of the economy where we should see a big expansion in entrepreneurial activity over the next few years. Those predictions are difficult to make because “entrepreneurial activity” has a variety of meetings, and because we don’t have a great deal of data to use to make forecasts. But I can make some predictions for self-employment using data from the Bureau of Labor Statistics (BLS).

Before I give you my take, let me tell you how I’m figuring this. My prediction is based on two factors. First, what parts of the economy are forecast to grow the most between 2008 and 2018? More people will be attracted to self-employment in growing sectors of the economy than shrinking ones.

Second, in what sectors of the economy is self-employment common? If self-employment doesn’t work well in a particular part of the economy, then expansion of the sector won’t trigger much growth in it. For instance, the utilities sector might be expanding, but it’s difficult to be self-employed in utilities. Therefore, growth in the sector won’t translate into a lot of expansion in self-employment. By contrast, self-employment is effective in retail trade, so expansion of that sector should lead to significant growth in self-employment.

To identify the sectors of the economy where expansion is expected, I looked at the BLS’s projections for growth in economic output from 2008 through 2018 and selected those sectors with expected expansion rates that exceed the median for all sectors. To identify the sectors in which self-employment tends to be effective, I looked at the BLS’s figures on self-employment’s share of jobs and selected those sectors where the share was above the median for all sectors.

Below are the sectors (as named by the BLS) which look best for future self-employment:

What’s noticeable about the list is what’s missing. Agriculture, utilities, manufacturing, information, and arts and recreation aren’t there. These sectors don’t look as good as the others for future self-employment.

For some sectors, the reason is the difficulty of engaging in self-employment, as is the case for utilities. For others, like agriculture, it has to do with the absence of projected output growth.

Of course, not all industries within each sector will follow the same patterns. For instance, most of manufacturing is not expected to be very favorable to self-employment over the coming years, but the subset of manufacturing focusing on durable goods and furniture and related product manufacturing is.

Similarly, the information sector isn’t expected to be attractive for self-employment in the near future, but the motion picture and sound recording industries are. And the arts, entertainment and recreation industry is predicted to be unattractive for self-employment over the next eight years, but the amusement, gambling and recreation industry looks favorable.

What are some of the other industries (as named by the BLS) that look good for self-employment going forward, at least over the next eight years?

Keep in mind that this analysis is only as good as the data on which it is based. Given the failure of many people to predict what has happened to real estate and finance during the financial crisis, the BLS growth projections for many sectors and industries may be wrong. In addition, if something transforms an industry to make self-employment appropriate where it hadn’t been before or inappropriate, or vice versa, the predictions will be off.

But those caveats aside, I’d bet on seeing a lot more growth in self employment in computer systems design and ambulatory health care over the next decade than in agriculture and wholesaling.