The Era of Declining Self-Employment

The Era of Declining Self-Employment

The number of employed Americans rose from 144,144,000 in October 2013 to 144,775,000 in November 2013, an increase of 631,000, according to Federal government data.

That’s good news. More people going back to work is something that everyone – left, right and center – agrees is good for the country.

But a closer look at the data shows that the employment situation isn’t as good for those Americans in business for themselves as for those who work for others. Hidden in the rise in the number of employed Americans is another trend. It’s a divergence between what has happened to people working for themselves (what economists call the self-employed) as compared to those working for others (what economists call the wage-employed).

Last month, the number of wage-employed Americans increased by 673,000, while the number of self-employed Americans declined by 42,000. (Wage employment is total employment minus the sum of incorporated and unincorporated self-employment.)

This divergence isn’t just a one-month aberration. Consider what has happened over the last year. From November 2012 to November 2013, the number of Americans working for others rose by 1,451,000. But, over the same period, the number of self-employed Americans fell by 225,000.

Both wage and self-employment took a similar-sized hit during the Great Recession, with self-employment dropping 5.5 percent between November 2007 and November 2009. During the same period, wage employment declined by a comparable 5.4 percent. But since then the recovery has been uneven. Wage employment has nearly returned to levels seen before the economic downturn. In November 2013, it was only 0.8 percent lower than it was in November 2007. By contrast, self-employment has declined further, and is now 8.1 percent below its November 2007 level.

The divergence in wage and self-employment means that fewer Americans are in business for themselves now than before the Great Recession. Bureau of Labor Statistics (BLS) data reveal that 6 percent of the American population is now self-employed, versus 6.9 percent six years ago. While a difference of 0.9 percentage points might not sound like a lot, it is. If the same fraction of the population was self-employed today as six years ago, 2,223,000 more Americans would currently be self-employed.

The history of self-employment over the past six years stands in sharp contrast to what happened over the previous seven. From November 2000 to November 2007, the number of self-employed Americans increased by 10.9 percent, while the number of U.S. wage-employed rose by only 6.6 percent.

If policy makers are as interested in self-employment as they seem to be at election time, they might take a look at what’s been different over the past six years versus the previous seven. The earlier period was far more favorable to self-employment than the latter one. Perhaps a change in policies is responsible.

Self-Employed Photo Via Shutterstock

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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.