U.S. Self-Employment Rate Predicted to Decline

In 2020, a smaller fraction of Americans will be in business for themselves than currently, a new report released by the Bureau of Labor Statistics (BLS) shows. Between 2010 and 2010, the BLS predicts that the self-employed fraction of the labor force will shrink from 6.3 to 5.9 percent.

This decline is part of a long term downward trend in self-employment. Back in 1948, 12.8 percent of the non-agricultural labor force was engaged in unincorporated self-employment, Steve Hipple, a BLS economist has shown.

As I have said, declining self-employment is a natural trend as economies develop. It occurs in part because of something I call the “Walmart effect.” Because of the efficiencies of scale, Walmart replaces a lot of small, independent businesses. The end result is fewer people running their own businesses and more working for someone else.

The declining rate of self-employment will occur because the number of self-employed people will increase less rapidly than the number of wage employed. Between 2010 and 2020, BLS economists predict that the economy will add about 20.5 million workers, 19.7 million of whom will work for someone else and 800,000 of whom will be self-employed. That works out to a 1.4 percent annual increase in wage workers and only a 0.8 percent annual increase in the self-employed.

The pattern contrasts with the 2000 to 2010 period where the economy lost 3.2 million workers, 400,000 of whom were self-employed. During that period the patterns were more similar for those employed by others and those self-employed, causing the fraction of self-employed to shrink only from 6.4 percent to 6.3 percent.

Secondary self-employment (self-employment by people whose primary job is working for a wage or salary) is expected to increase more slowly than primary self-employment, with BLS economists forecasting a 0.5 percent annual increase from 2010 to 2010.

That’s also very different than what happened from 2000 to 2010 when over 500,000 secondary self-employed left the labor market, resulting a 3 percent annual rate of decline.

Self-employment Decline Photo via Shutterstock

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.