Self-Employment Climbs, But Earnings Fall

[imgbelt img=percent-change-nonemp2002-2012.png]The one bright spot in rural America’s small-business development in the last decade was in “nonemployer” businesses, what we typically know as self-employed workers. The bad news is that earnings in this category dropped dramatically over the last decade.


Percent Change Nonemployers, Micro, and Small Businesses, 2002-2012

dataset was analyzed. “Nonemployer” is what the Census calls businesses that have no paid employees. These are typically very small, unincorporated entities. In common language, we usually refer to these business owners as self-employed. According to the Census definition, such businesses pay at least some federal taxes and have annual receipts of $1,000 or more. (In the construction industry, the Census includes all businesses that have $1 or more in receipts).

The Census County Business Patterns dataset for continental U.S. counties was also analyzed. This dataset includes businesses with paid employees. Besides nonemployer businesses (remember, that’s what we usually call self employed), two other types of entities were included: “micro” business (MB), which have one to four employees, and “small” businesses (SB), which have five to 19 employees.

The growth or decline in these types of businesses from 2002 to 2012 in rural (noncore) counties, counties with small cities (micro), and metropolitan areas were analyzed. Some of the results are in the chart at the top of this article.

A similar pattern can be seen in micro businesses (MB) and small businesses (SB): Both increased in metropolitan counties and decreased in small city and rural counties.

Nonemployers or self-employed, however, increased in all county types. The number of nonemployer businesses increased from 17.5 million in 2002 to 22.5 million in 2012 in the nation; in rural counties, this number went from 1.1 million in 2002 to 1.2 million in 2012.

In fact, the share of nonemployers of all business establishments (including those with paid employees) also increased between 2002 and 2012 across all county types. In 2012 three-quarters or 75.4% of all business establishments in the U.S. were nonemployers. This proportion also holds for metropolitan and rural counties, and is slightly lower for small city counties. On the other hand, the share of micro and small businesses decreased during this same time period (not shown).

When adding up nonemployers, micro, and small businesses, they account for a whopping 96.6% of all businesses in 2012, up from 96% in 2002. In other words, less than 4% of total businesses had 20 or more employees in 2012. Note that this share was slightly higher in rural counties in both years.


Percent of Nonemployer, Micro, and Small Businesses of All Businesses, 2002-2012

concern for entrepreneurs and small businesses.

Second, “traditional” economic development strategies like recruitment must be reconsidered and focus more on retention and expansion of existing businesses. Scarce resources should be channeled to supporting these nonemployers, micro, and small businesses.

Third, it must be noted that even though an increase in number of nonemployers occurred, income did not keep up. Efforts to help these businesses increase their income should be an economic development priority.

Access to broadband and effective use of broadband applications can help in that this technology levels the playing field between metropolitan and rural businesses giving not only access to vast markets worldwide but can also help entrepreneurs and small businesses save money and increase productivity. A study by the Internet Innovation Alliance found that start-ups can save up to $16,000 dollars in their first year by using broadband applications.

Imagine this: Half of the nonemployers (self-employed) in rural areas in 2012, or about 500,000, increase productivity and revenues within two to three years and end up hiring one employee. This immediately translates into 500,000 new jobs, sufficient to reverse the wage & salary jobs decline in rural areas between 2002 and 2012.

Roberto Gallardo is an associate Extension professor at Mississippi State University.