Self-employment in the United States

Monthly Labor Review

Volumn 133, Issue 9, 2010, Pages 17-32

  Hipple, Steven F ^a  

^a BUREAU OF LABOR STATISTICS   (United States)

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EID: 77958157304     PISSN: 00981818     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (23)

1. The CPS is a monthly sample survey of about 60,000 households that provides information on the demographic characteristics of the labor force and the employment status of the noninstitutional population ages 16 and older
2. Earlier data on self-employment included both the unincorporated and incorporated self-employed, and the combined series showed a steady decline from 10.8 million (18.5 percent of the total employed) in 1948 to 8.1 million (11.1 percent of the total employed) in 1966; essentially all of the decline in self-employment over this period was in agriculture.
3. Data from the Internal Revenue Service (IRS) show that the total number of corporations rose from 3.7 million in 1990 to 5.9 million in 2007. From 1990 to 2007, the number of S corporations rose from 1.6 million to 4.0 million. An S corporation is a corporation that has between 1 and 100 shareholders and passes net income (or losses) through to shareholders in accordance with chapter 1, subchapter S, of the IRS Revenue Code. In contrast to the number of S corporations, the number of C corporations edged down from 2.1 million to 1.9 million. A C corporation is a corporation that, for Federal income tax purposes, is taxed under subchapter C of chapter 1 of the IRS Revenue Code. In recent years, there has been a sharp increase in the number of limited-liability companies (LLCs). IRS data show that the number of LLCs rose from about 17,000 in 1993 to 1.8 million in 2007. A business structure allowed by State statute, an LLC is similar to a corporation in that it provides owners with personal limited liability for the company's debts and actions. However, unlike a corporation, an LLC is not considered separate from its owners for tax purposes. Instead, similar to a partnership or sole proprietorship, an LLC is considered a "pass-through entity," meaning that business income passes through the business to the members of the company, who report their share of profits (or losses) in their individual income tax returns. The Federal Government does not recognize an LLC as a classification for tax purposes, and every LLC business entity must file as a corporation, partnership, or sole proprietorship. According to IRS data, about 90 percent of LLCs were organized as either partnerships or sole proprietorships.
4. In a recent blog post on the Small Business Trends website, Scott Shane cited additional reasons that might be motivating business owners to incorporate, including a rise in the importance of limited liability, given the greater legal exposure that the self-employed face; lower costs and greater ease of incorporating; rising health care costs and a desire to be able to list these costs as tax deductions; and a possible increase in the tax benefits gained by incorporating
5. See Scott A. Shane, "More of the Self-Employed Incorporate," Feb. 15, 2010, on the Internet at smallbiztrends.com/2010/02/more-of-the-self-employed-incorporate.html (visited Apr. 12, 2010).
6. In addition, anecdotal evidence suggests that business owners might choose to incorporate because of the enhanced status afforded by incorporation and because many attorneys and accountants advise unincorporated business owners that it would be in their best interests to incorporate their businesses
7. Estimates of incorporated self-employment for selected years are available before 1989. These data show that incorporation has become more common over time, increasing from 1.5 million in 1976 to 2.1 million in 1979 and 2.8 million in 1982; as a share of total employment, the percentage rose from 1.8 percent, to 2.2 percent, to 2.8 percent over the same points in time.
8. As was the case for total employment, the 1994 increase was particularly pronounced among women
9. See Anne E. Polivka and Stephen M. Miller, "The CPS after the Redesign: Refocusing the Economic Lens," in John Haltiwanger, Marilyn Manser, and Robert Topel, eds., Labor Statistics Measurement Issues (National Bureau of Economic Research, Studies in Income and Wealth, vol. 60, 1998), pp. 249-86, especially pp. 275-77.).
10. The National Bureau of Economic Research (NBER), the generally recognized arbiter of recessions in the United States, designated June 2009 as the trough of the recession that began in December 2007
11. A recent report examined the rate of business creation at the business owner level. The author found that, in 2009, the largest increases in entrepreneurship came from older individuals and Blacks.
12. See Robert W. Fairlie, "Kauffman Index of Entrepreneurial Activity: 1996-2009" (Kauffman Foundation, May 2010), on the Internet at www.kauffman.org/research-and-policy/kauffman-index-of-entrepreneurial-activity.aspx (visited May 27, 2010).
13. For an analysis of transitions into and out of self-employment among older workers who have career jobs, see Michael D. Giandrea, Kevin E. Cahill, and Joseph F. Quinn, "Self-Employment Transitions among Older American Workers with Career Jobs," Working Paper 684 (Chestnut Hill, MA, Boston College, April 2008), on the Internet at fmwww.bc.edu/ec-p/wp684.pdf (visited Apr. 16, 2010).
14. In a recently published book, Robert W. Fairlie and Alicia M. Robb conducted in-depth research on why businesses owned by Asian Americans (or, simply, Asians) tend to be more successful than White-owned and Black-owned firms. Also exploring the broader question of why some of the self-employed are successful and others are not, the authors found that a high level of startup capital is the most important factor contributing to the success of Asian-owned businesses and that the lack of startup capital for Black businesses contributes to their relative lack of success. Moreover, higher levels of educational attainment among Asian business owners explain much of their success relative to both White- and Black-owned businesses. Finally, the authors found that Black self-employed workers have fewer opportunities than their White counterparts to acquire work experience through family businesses.
15. See Robert W. Fairlie and Alicia M. Robb, Race and Entrepreneurial Success (Cambridge, MA, MIT Press, 2008).
16. Beginning in 1994, questions on nativity and U.S. citizenship status were added to the basic monthly CPS. Respondents were asked to name their country of birth. Those who said that they were born in the United States, Puerto Rico, or another U.S. territory or that they were born abroad of an American parent or parents are classified as U.S. natives. Individuals who provided another response are classified as foreign born.
17. Research on foreign-born self-employment conducted by Maude Toussaint-Comeau determined that, on average, the self-employment rate of the foreign born was somewhat higher than that of the native born. However, there was wide variation in the rates by country or region of origin. Toussaint-Comeau found that differences in personal and human capital characteristics and length of time residing in the country are potential sources of differences in self-employment rates among the different groups.
18. See Maude Toussaint-Comeau, "Self-employed immigrants: an analysis of recent data," Chicago Fed Letter, no. 213 (Chicago, Federal Reserve Bank of Chicago, April 2005), on the Internet at www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2005/cflapril2005_213.pdf (visited May 11, 2010).
19. Full time is defined as 35 or more hours per week
20. The proportion of the incorporated self-employed working part time for economic reasons rose from 2.1 percent in 2006 to 5.6 percent in 2009.
21. In 2009, the proportion of unincorporated self-employed men in nonagricultural industries who worked 49 or more hours per week was 25.1 percent, compared with 16.8 percent of their female counterparts.
22. In 2009, the 35.6-hour average workweek for the unincorporated self-employed (men and women combined) in nonagricultural industries was the lowest in the history of the series, which began in 1976.
23. The incorporated self-employed were much more likely than the unincorporated self-employed to have paid employees. The February 2005 Contingent and Alternative Work Arrangements Supplement to the CPS collected data on the presence of employees of incorporated self-employed workers. According to estimates from the supplement, about 2.8 million (56.2 percent) of the 5.1 million incorporated self-employed workers had paid employees. Of the 2.8 million, 50.4 percent employed 1 to 5 workers while 14.0 percent had 20 or more employees.