I recently posted on the U.S.per capita self-employment rate being stable at around 10% over the last decade. I did this in response to Scott Shane’s NY Times article arguing that self-employment rates have fallen.
Last week Scott answered back showing that over the long run per capita self-employment rates have fallen from a high of above 12% in 1948 to the roughly 10% rate it is at today. He agrees that the rate hasn't been declining over the last decade.
While I don’t always agree with Scott’s analysis, I have a lot of respect for Professor Shane and consider him a leading authority on entrepreneurship and small business data. And I agree that since the late 1940’s self-employment rates have fallen.
But the more interesting question is has the U.S. self-employment rate hit and inflection point and are we going to see the rate trend upward in the coming years?
We think the answer is yes due to a mix of shifts and structural changes. These include:
1. The lower costs and risks associated with becoming self-employed: The Internet and new, lower cost technologies have made self-employment much easier and cheaper. Also, with employer benefit packages being cut and the chances of losing a corporate job increasing, self-employment is no longer substantially more risky than traditional employment.
2. Demographic and social shifts favoring self-employment: Aging baby boomers, women, Gen Y and others are all seeing self-employment and small business as increasingly viable work options. The reasons are too long to list here, but see Intuit’s Changing Face of Entrepreneurs forecast report for more details.
3. A lack of corporate jobs: Large corporations have been battered by the recession. Even if the economic recovery is strong (which seems unlikely), these companies will not dramatically increase hiring. Instead of hiring full time staff, they will improve productivity and stay flexible through the increased use of technology, contractors, partnerships and outsourcing. Because of this, self-employment will be the best option for many.
The self-employment rate fell substantially from the late 50’s through the late 70’s as structural economic shifts resulted in multi-national corporations expanding their role in the U.S. economy.
Since the late 80’s the rate has been stable. But over the last 20 years technology and globalization have fundamentally changed the economy. We believe these changes, coupled with the recession, will trigger a shift towards increased self-employment in the coming years.