Have We Lost a Generation of Small Business Owners?

We’re down more than 1.1 million. That’s how many fewer self-employed Americans there are today than when the Great Recession began.

According to Bureau of Labor Statistics figures, there were 589,000 fewer incorporated self-employed people and 569,000 fewer unincorporated self employed people in February 2011 than in December 2007. Perhaps most remarkably, on a non-seasonally adjusted basis, we have 753,000 fewer self-employed people now than when the recovery began in June 2009.

The most severe losses have been among the one third of the self-employed who head corporations. As the figure below shows, back in December 2007 there were 589,000 more incorporated self-employed Americans than there are today, and back in June 2009, there were an additional 95,000.

Incorporated self-employedClick for larger chart

The recession and tepid recovery that has followed has eliminated 10.1 percent of the incorporated self-employed. To give you a sense of the magnitude of this loss, between December 2007 and February 2011, the total number of Americans with jobs declined by 5.6 percent on a non-seasonally adjusted basis.

As a result of the recent decline, the current level of incorporated self-employed is back to the level we had in April 2004, despite a significant increase in the population.

The disappearance of so many incorporated self-employed is troubling given the characteristics of this type of self-employment person. An article by Steve Hipple, a BLS economist, explains that self-employed heads of incorporated businesses are less likely to work part time and are more likely to have employees. Moreover, nearly half of self-employed heads of corporations have at least a college education, making them more educated than the unincorporated self-employed, on average.

Hipple finds that many incorporated self employed are found in construction and professional services. Doctors’ offices, law firms, accounting firms, dental practices, real estate agencies and insurance agencies, for example, all involve a lot of incorporated self-employment.

The staggering reduction in the particularly valuable incorporated form self-employment has me wondering, “How long it will take America to rebuild our stock of small business owners?”

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.