Guest Post: The Decline Of Self-Employment and Small Business

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Small business is the incubator of employment. As it declines, so too do opportunities for first jobs, second chances and economic independence.

 
Self-employment and small business are two sides of a single economic coin: financial independence. The Bureau of Labor Statistics (BLS) counts two types of self-employed, the unincorporated and the incorporated. The unincorporated may have employees, but typically do not, i.e. they are sole proprietors. The incorporated have employees, starting with the owner, as the BLS counts the incorporated self-employed as employees of their own corporation.
 
I know that's confusing, but it's important to separate the sole proprietors from those "self-employed" incorporated businesses that have employees: law firms, doctors' offices, accountants, etc.
 
When we speak of "small business," we're referring in large part to the incorporated self-employed: people who establish corporations as the legal structure for their enterprise.
 
Nothing is simple when it comes to parsing all the data, of course, but the BLS has a paper that explains the basic categories: Self-employment in the United States (Bureau of Labor Statistics).
 
The BLS attributes the decline in unincorporated self-employment from 1950 to 1970 to the consolidation of agriculture. As agriculture became more mechanized, small farms were no longer viable and farming required less labor. As a result, many self-employed farmers and laborers became employees or moved to other sectors.
 
The trajectory of self-employment from 1970 to the mid-2000s tracked general economic growth, which was weak in the 1970s but began a 30-year boom in the early 1980s.Things changed in the recession, as the self-employed ranks have lost 1.6 million from the peak in 2007. The number of self-employed has fallen to early 1980s levels: (All FRED charts courtesy of frequent contributor B.C.)
 
 
This chart displays the self-employed as a share of total non-farm employment.The first chart showed a strong rise in self-employment from 1970, but this chart shows that employment rose even faster: the self-employed share of all those employed has been declining for 30 years:
 
 
We can attribute this trend to the rise of global Corporate America and government employment. The workforce expanded, and relatively more people became employees of corporations or the government than became self-employed.
 
It's important to note here that the BLS does not break down the income of unincorporated self-employed: if millions of self-employed saw their net incomes slashed in the recession, the BLS still counts them as self-employed. So a consultant who earned $100,000 prior to the recession and now scrambles to net $10,000 is still self-employed.
 
This is the statistical equivalent of 6 million people losing full-time jobs and then 4 million of those people getting part-time jobs. Did employment truly recover most of the losses?
 
This chart displays total non-farm employment (blue) and the incorporated self-employed. Unsurprisingly, the rise and decline of the incorporated self-employed tracks the general economy and total employment.
 
 
But once again we have to note the limitations of the data. As B.C. observed, some of the recent rise in incorporated self-employed is the result of tax policies favoring corporations; the newly incorporated may well not have any employees, i.e. they are simply sole proprietors who incorporated for the tax benefits:
 

Historically, in order for incorporated self-employment to grow, it requires an increasing share of the population that is inclined to, or capable of, first becoming unincorporated self-employed. A growing share of the incorporated self-employed since the '00s are one-person S corporations (to take advantage of favorable tax treatment) or limited partnerships (LPs) and limited liability corporations (LLCs) in real estate for pass-through purposes that hire few, if any, employees.Consider that the US employment base is disproportionately dependent upon the viability of as few as 4% of the labor force and fewer than 2% of the population as the primary "job creators", i.e., incorporated self-employed.

After a brief increase in 2012, the self-employed as a share of total employment is falling off a cliff:
 
 

Spend some time walking through Silicon Valley or New York City, and you’ll likely leave under the impression that entre­pre­neur­ship is alive and well in the United States. But spend some time wading through some of the latest census data, and you may come away with a very different impression.

This trend is reflected in the decline of small business in general:
 
 
Although many analysts claim most employment growth now comes from corporations, once again we have to look beneath the surface and ask what kind of jobs are corporations creating? More part-time fast-food positions?
 
Small business plays two critically important and often unrecognized roles. One, it tends to give new workers their first employment experience. The corporate human resources departments are not so forgiving--have you had your third interview yet? Only two more to go....
 
Two, small business tends to train workers who are then able to move up the job ladder to better paying corporate jobs, having learned the ropes at a small business. If you talk to corporate insiders, they will admit (in private) that their own job training efforts are limited: it's faster and more productive to poach your new hires from a competitor than invest years bringing up new talent.
 
Corporations may point to their intern program as "job training," but this is all too often a PR facade for unpaid slave labor. How many interns learned anything remotely useful? How many end up with full-time jobs at the company? The typical answer is: very few.
 
Small business is the incubator of employment. As it declines, so too do opportunities for first jobs, second chances and economic independence.

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FLUSA.com's picture

The rumor on the street is disability is hiring

espirit's picture

The .Gov MSM have been told not to post the obituary.

MillionDollarBonus_'s picture

The age of 'small businesses' is over. If you had argued that we needed 'entrepreneurs' to create new products and services 100 years ago, then you may have had a valid point. But in today's developed global economy, we have international corporations and semi-governmental institutions that take care of all the basic products that we need. Large corporations have now streamlined their processes to such an extent that entrepreneurs are no longer able to compete to provide better quality products. The global economy no longer needs new businesses. What we need now is integration, and a global central governing institution to consolidate global fiscal and monetary policy. This is how we are going to progress as a species.

Meat Hammer's picture

It is now quite obvious who pays you.

espirit's picture

Uparrow the trolls, and you'll starve them.

InTheLandOfTheBlind's picture

mdb does seem to be losing his sense of humor... he might need a break or frontal lobotomy... my advice is the same as tom waits:  I'd rather have a bottle in front of me than a frontal lobotomy....  take a break mdb... first round is on me

Skateboarder's picture

"And all consumers know that when the producer names the tune... the consumer has got to dance."

This aint really your life, aint really your life, aint really aint nothing but a movie.

https://www.youtube.com/watch?v=sLtRHN7fsgY

RIP Gil Scott-Heron

draug's picture

It is now quite obvious that you don't have a sense of humor.

saveUSsavers's picture

MDB is right. The Gov/Fed are fostering monopolies to kill small biz, especially self-emp.

LasVegasDave's picture

One of your better ones, MDB

The closer to the evil you get, the funnier

new game's picture

you couldn't have done it without uncle sam lending the long arm of help.

i owned a business 5 years ago-no thanks, a fucking nightmare of regulations and taxation.

the final straw that made me quite; "you are liable  because you should have known" - could not make this up in a million years.

ie; real estate disclosure law in MN.

smlbizman's picture

speaking of disclosures...in harford county md., because of aberdeen proving grounds...when you look at r.e...you get a disclosure that says ...there may be bombs buried in your grounds , and pretty much if you blow yourself up by planting a bush etc., we told you so....

autonomos's picture

Very good one MDB - thanks for the laugh

LawsofPhysics's picture

Unfortunately, in order for the system you speak of to be credible, there must be a set of laws and contracts that applies equally to all those that live under it.  Where is john Corzine motherfucker?  Fraud is the status quo, possession is the law and everyone now recognizes that now troll. By the way, the species has been devolving for some time now and the lack of accountability in leadership reflects that very clearly.  Black markets are booming.  All kinds of small businesses starting in these unofficial markets.  The "official" market is now recognized for the scam that it is.

Tortuga's picture

Hell yea. Then all I needed to do was call GE or USFilter to get my 3 quotes for electric drop/box upgrade and sewer line from house to street replacement and fence installation. All of whom said it would be weeks before the jobs could start because of recent layoffs. Of course these are all small businesses that are being stomped by obummercare, increased taxes and regulatory paperwork and fees but don't have a political or lobby ho to get them an exemption. Guess this is because they all "work" as opposed to perform a service,administrative, or breaucratic function with bonuses paid by taxes on real work  as opposed to "faux"  work. 

hapless's picture

"But in today's developed global economy, we have international corporations and semi-governmental institutions that take care of all the basic products that we need."

 

In spades.  If fact, int'l corporations and semi-govs provide us with all our needs so easily that they have plenty of resources left over to bury us with crap.

trollin4sukrz's picture

There will be a New World Order, either by consent or conquest.

Tombstone's picture

I know; let's let the government create new products and services for all of us.

Roandavid's picture

Classic work MDB.

I'm thinking it has to be simultaneously terrible and wonderful to reside in your head.

saveUSsavers's picture

I think you may be on to something. The Gov/Fed is hollowing out savers by making them use their principal, Obamacare guarantees 35% higher health insurance premiums for selfemployed, who certainly aren't going to hire, large corps are gobbling up small due to NIRP and issuance of junk bonds to buyout the competition, incentivized to buy a labor-replacement machine and getting 100% depreciation on it, this for starters that you are right about this working against self-employed.

kchrisc's picture

All of these companies are connected to the gov in one way or another--the de facto government store.

Now go into a Walmart or one of their competitors and checkout product breadth and depth. You will find that they are both sparse when compared to 10 to 20 years ago. This is a trend that I have been watching develop before my eyes over the years and now the stock levels in some areas are beginning to look more and more like pics of Soviet gov stores in the eighties. Also more and more the Target and Walmart are carrying the same products. Sometimes they have a different brand and/or color or some minor modification, but they are the same.

Is it time to start shooting when we have to stand in line for toilet paper?!

          hujel

bonin006's picture

It worked so well for the USSR, and now Europe is blossoming under the same model.

(reply to MDB)

Zero Debt's picture

You forgot to mention the benefits of Central Farming. We need to merge all farms into a single mega farm and provide crop guarantees. If there is a shortfall, we can meet it by stocking up in government repositories. The central farm shortfall reassurance repository will be backed by 1 oz of rehypothecated grains. To maximize output we will borrow money from the central bank to buy fertilizers. The more fertilizers we use, the healthier the economy, the higher the output, the better the figures and the safer the food supply. In this way we can eliminate the waste from small farmer trying to grow their own food. This is a wasteful practice and is against what nature has intended. We need to be doing God's Work and unify all fod supply under a Great Leader, who will Take Care Of Us. Yes, I Think We Can. And to monitor the collective property we will use aerial drones, where one command center controls all the drones. Anyone trying to plant a flower in their back yard will be promptly shot at the spot without jury, judge or trial.

Ideally we will centralize the National Central Farms to a Global Central Farm, where all food production will come from a Single Source. All foodstuffs will be tagged with RFID chips to ensure that we allocate and ration the limited output appropriately to where It Is Needed The Most. This will be headed from Brussels by an unelected set of technocrats who have recognized qualifications in the arts and crafts of seeds and plowing from established and recognized institutions with good reputations.

/sarc

ali-ali-al-qomfri's picture

MDB would close the patent office, again.  Thx MDB

markettime's picture

We all had to trade in our businesses for a position at Walmart. 

tempo's picture

self employment vs robots is not a fair match. Automation is eliminating millions of descent paying jobs each year worldwide. So central banks stimulate/QE etc. to support consumption for the robot factories. But tax revenue is flat and debt levels/central government control increases. Laid off workers try to support themselves with a home business and find that its impossible to compete against automated factories and massive regulation/taxes. So they give up and go on food stamps or disability. So go back to school and run up even more debt.

saveUSsavers's picture

The Fed is enabling job-killing w/ zero-rates, so the Corp buys a labor-replacement machine they would not ordinarily buy, THEN OBAMA MAKES IT WORSE, giving 100% depreciation at time of purchase. Connect the dots!

Radical Marijuana's picture

Dear "sUSs:"

It appears to late too send out any "SOS" to save US savers. The American economy is being deliberately destroyed by an inside job being done on it. I think the following article does good analysis of that, although I feel its "solutions" are bullshit, because I think that when one fully understands the magnitude of the real problems, then there are NO solutions. Nobody is going to save the American economy, from the perspective of the majority of the American flesh and blood people. Nothing is going to save US savers ... The established systems are already RUNAWAY SOCIAL INSANITIES!

http://www.veteranstoday.com/2013/04/21/money-for-nuttin-debt-for-free/

Money for Nuttin—Debt for Free

By Preston James, April 21, 2013.

tango's picture

You touched upon the most important - and least noticed -  aspect of the times.   Disruptive technolgies are increasingly replacing human effort.  It's been happening for 200,000 years but we've reached a new level of sophistication (and increasing daily) that makes it near impossible for a company to compete with mere human power.    This, by the way, is one way companies continue profits - replacing the largest expense (salary) with a one-time purchase of a machine. 

To add to our troubles, our government is seemingly hellbent on placing as many roadblocks as possible to small job creation.  I see nothing to suggest a change in direction, thus it's more debt, welfare and control until..KABOOM

Radical Marijuana's picture

Runaway technology channelled through a social pryamid scheme, so that almost all the benefits go to those who own the machines, while almost nothing goes to those who do not own those machines. Technologies amplifying human capacities by trillions of times is clearly headed towards KABOOM! Since everything that science and technology can do ended up manifesting through the established social pyramid systems, the inequalities are being magnified by many orders of magnitude.

If and only IF political science went through sufficient paradigm shifts, to keep up with those in physics and electronics, and biology, etc., THEN we might be able to adapt. However, for now, all the science and technology is primarily employed to enable people to be better at being dishonest, and backing that up with violence. We have scientific brainwashing, making people become crazier, since the social pyramid systems depend upon the vast majority of people continuing to be ignorant and afraid.

That is the GRAND PARADOX of science, the oldest social science was warfare, but success in warfare was based on deceits. Thereby, the War Kings created the countries that were taken over by the Fraud Kings. Therefore, the advances in technologies have primarily made the social pyramid systems MORE INSANE:

http://www.youtube.com/watch?v=4rnJEdDNDsI#!

Human Resources

Social Engineering In The 20th Century

SmittyinLA's picture

Most of America's self employed would come out financially way ahead going on disability, its an ecnomic no brainer, look at the disability pay & perks versus their income less expenses & less taxes (disability is more way more and its tax free)  pretty soon it will be a "no brainer" for millionaires to not work too.

Probably make a funny movie about the last private sector self employed person on the planet.

aaliyah's picture

Digital Flow Meters Spiremt.com provides all types of digital flow meters, heating meters, portable and handheld flow meters, water meters etc. at affordable price.

TeamDepends's picture

You didn't build that.  He should be tarred and feathered for that statement alone.

hankwil74's picture

" Somebody invested in roads and bridges. If you've got a business—you didn't build that. Somebody else made that happen."

 

"that" refers to roads and bridges. Only a complete ignoramus would think otherwise. It becomes even more obvious when you watch the actual speech.

 

I am not a fan of Obama, but when you attempt to discredit him by taking something out of context, it makes it more difficult for the rest of us.

LasVegasDave's picture

The small business owner, through wealth confiscation known as taxes, did build the roads and bridges,

Who didnt build it are the 50% who pay no taxes and are parasites on the productive class.

So President Alinsky was lying, again

LetThemEatRand's picture

I am a small business owner.  When I was born 40 odd years ago, there were roads, bridges, schools, airports, and many other things I did not build.  My parents -- who both worked -- paid taxes and occasionally bitched, but they sent me to public school and helped pay my way through college and graduate school.  I am now a small business owner who injects six figures into the economy every year.  I would love not to have to pay taxes because it would be more money in my pocket and I strongly disagree with where the taxes go (MIC, a welfare system designed primarily to keep people in line, banker bailouts, etc), but this whole debate about who "built that" is just silly.  How about we debate something of substance?

Benjamin Glutton's picture

largely agreed until "banker bailouts"...The bailouts should first be known as depositor bail outs (for those above insured limits). The bankers share can really only be regarded as theft. As for the rest of the beneficiaries of our prestidigitator and chiefs bribery for silence scheme I offer the following.

 

"The penalty good men pay for indifference to public affairs is to be ruled by evil men."... Plato

 

The problem with Plato's and later Burke's observation was a gross overestimation of both the number and relevance of "good men".

NotApplicable's picture

If you think this argument lacks substance it's only because you fail to fully account for the ramifications of building something with stolen funds.

Funny, where I live, there are both roads and bridges which pre-date the governments that now claim to "own" them. Then of course, is the $16T in debt that will still need to be paid for from future production (not that it can). So, what's happening here? Stolen loot and debt is destroying the very environment the infrastructure is allegedly supporting.

If you don't like the "build it" argument, feel free to ignore it, rather than debating the point by dismissing it as not worthy of debate (you might notice how you've invalidated your own wishes by doing such).

Common_Cents22's picture

huh? straw man argument.  nobody argues "no taxes".

Where does govt get the money to build roads and bridges?   A freakin money tree?(bernanke thinks so)   Govt confiscates money via taxation and is out of control.

Radical Marijuana's picture

Nothing of substance ever gets debated in the public space, because, IF one did, THEN one would begin with the SOURCE of the Money Supply. That would then open a totally TOXIC can of worms, which is no longer allowed to be done, except on the fringes of society, such as within Zero Hedge. So far, the Internet enabling that has still done almost nothing to change anything ...

hankwil74's picture

without those "parasites" we have no dishwashers, waiters, grocery clerks, stockboys, retail employees, bartenders, etc.

I suppose you envision a world with all chiefs and no indians. 

LetThemEatRand's picture

Every Randist I have ever encountered believes that everyone can be a chief if they just tried hard enough, because it feeds their own ego.  The truth is that I'm glad that most people are not as motivated as me because if they were I would be merely average.

NotApplicable's picture

Realize whenever you use the term "Randist," it's all of your own design, painting others' who do not wear that label.

If you were at an Objectivist website, it would be one thing, but you're at ZH, where there are plenty of us who are smart enough to understand that Rand became a typical, incoherent agent provacetuer, regardless of the content of her novels.

In other words, she went over to the Dark Side in exchange for increased power and fame. Feel free to go bug true Randists all you like, as they're all as incoherent as she was.

tango's picture

Calling someone "Randist" is as juvenile as declaring opponents of Obama "racist" or gun owners "survivalists" or those who don't give a shit about the FED "sheeple."  It's name-calling more appropriate to kindergarten.

IdiocracyIsAlreadyHere's picture

Not to mention many Ayn Rand acolytes totally miss the point of her writings anyway - Paul Ryan types who hold up hedge fund managers as some sort of real life Howard Reardons when most of them are the very type of leeches that she (at least in her novels) deingrated.  Jamie Dimon and Lloyd Blankfein do not in any way resemble the kind of fictional hero that was her ideal.  "Randian" as as useless a term as "conservative" these days, (self)applied by people who completely miss the point.

smartstrike's picture

Taxes are pass-through cost of doing business. Most small business owners under report their income and fail to pay taxes that they are obligated to remit because they pocket it even though its built into their pricing.

Large corporations don't pay taxes--neither do their owners, so I agree with you that these tax non-paying entities are a plague on the productive class: the consumer.

Uncle Remus's picture

"Taxes are pass-through cost of doing business"

No, it's squandering my time to act as an unpaid tax collector and doing their paperwork.

IdiocracyIsAlreadyHere's picture

Please spare me the "50% of the population who didn't pay (income) taxes are parasites" BS.  Income taxes are not the main source of funds for roads and bridges, gasoline taxes are.  And as had as it is to believe for someone like you, the majority of road work is paid out of state and county, not federal taxes.  There is no shortage of things to criticize about this absurd adminstration, but beating a dead horse over and over again by taking one comment out of context is not helping.  Neither is putting down 1/2 of you fellow citizens as worthless moochers.  You are not the self-reliant superhero you think you are.