What’s Happened to Small Business Employment?

Small business owners used to be interested in employing others. While many still are, that fraction has been falling for many years.  Consider figures from the Bureau of Labor Statistics (BLS). The government agency’s data show that back in 1995, 20.7 percent of self-employed heads of unincorporated businesses had employees. By 2010, the figure was down to 16.6 percent.

Source: Created from data from the U.S. Census

Data from another government agency, the Census Bureau, shows a similar pattern. Back in 1992, 26.2 percent of U.S. businesses employed at least one person. By 2010, only 20.5 percent had anyone on their payroll. As the figure below shows, the decline has been pretty steady since the Census Bureau began reporting annual data in 1997.

While a 4.6 percentage point change in the fraction of U.S. businesses that have employees might not sound like much, it’s a lot. If the same fraction of small businesses had employees in 2010 as did back in 1992, we would have 1.6 million more employers than we have now.

Even if the size of the average American business with employees remained at its 1992 level of just over 18 workers (it’s now slightly over 20), a shift of 1.6 million businesses from the non-employer side of the ledger to the employer side would mean 29 million more jobs than we currently have.


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.

13 Reactions
  1. Hey Scott,

    Those are very interesting statistics. I would think that a lot of it comes down to many people not wanting to have the extra costs and hassle of managing an employee when the internet has made it so easy to do so many things without any help.

    I personally am working on building a lifestyle business, and I don’t plan on ever having employees. If I did it would be a part-time virtual assistant without any promise of long-term work. So I can understand the trend!

  2. I think what needs to be factored in is many are using virtual workers who are independent from the company and function under a W-9 rather than a W-2. It is more cost-effective for the small business if their business has the ability to operate this way. Match this statistic against the increase in self-employed and there might be a correlation.

  3. I agree with Susan. I think you’re seeing three main factors at work:

    1. Business owners are more reluctant than ever to take on new employees with the obligations and expenses that requires. Wherever possible they’re utilizing contract or outsourced workers for those tasks they can’t do themselves; rather than employees.

    2. Technology is a force multiplier. In businesses small and large tech lets them do more with fewer people. The proliferation of mobile tech just amplifies that issue – whereas before the business owner was putting in long hours at the office and hiring people to reduce their load now many of them can leave the office at a reasonable hour and continue to be productive on their home machine and/or tablet computer.

    3. I think there has been a fairly steady growth of small businesses as people who were laid off opt to start their own business rather than being an employee. More new small businesses that haven’t reached a point where they’re ready to hire yet.

  4. Very interesting and insightful. Kudos for posting this.

  5. i think this might in part play to the development of the internet… not neccesarily killing the small business but due to the availability of goods online i dont think people have the same expenditure to have people employed at a ‘small business’.

  6. Susan makes a great point. I know many small businesses that utilize contractors instead of employees. This cuts overhead (thank you government regulations) and you’re not constantly needing to worry about whether your employee has enough work to keep them busy. I’d be interested to see how the stats on independent contractors looks against this data.

  7. I would love to hire two employees but can’t justify it until the business climate improves. This is not the kind of work that can be easily outsourced. I’ve had some success in the past hiring temps.

  8. But if you could afford to hire an employee, its much better. Considering you can assure quality work by filtering applicants through the job interview. You can also help decrease the unemployment rate. But businesses, specifically start ups, can consider outsourcing to reduce business expenses.

  9. Being a business owner in a terrible economy, no we won’t hire more employees, we the owners step in and do more! The expense of employees and the headache of babysitting them, no thank you!

  10. As the owner of a small publishing business, I wrote an explanation of why we don’t employ people: https://monographer.wordpress.com/?s=outsource

    Why do governments penalise job creation?

  11. While I am not opposed to growing my team, you simply can do more with less than you ever have before. Technology has made business much more scalable for the family office, one person business or side business.

  12. I agree with Jud. You can do more with less. Less to manage which equals better productivity. Great post Scott.