The United States labor market has been undergoing a substantial shift toward small-scale entrepreneurship. The number of proprietors – owners of businesses who are not wage and salary employees, has skyrocketed, especially in the last decade. Proprietors are self employed business owners who use Internal Revenue Service Schedule C to file their federal income tax. Wage and salary workers are all employees of any establishment (private or government), from executives to non-supervisory workers.

From 2000 to 2011, the number of non-farm proprietors grew by 10.7 million. Total wage and salary employment grew by only 105,000 between 2000 and 2011. Government employment, including federal, state and local, grew 1.36 million, while private employment declined by 1.26 million (Figure 1).

As a result, 99 percent of the total increase in employment from 2000 to 2011 was in the self-employed, according to Bureau of Economic Analysis of the United States Department of Commerce data. By comparison, during the 1990s, self employment accounted for only 22 percent of the increase in jobs nationally (Figure 2). The economic impact of the increase in self employment may be less, however, than its gross numbers, because many of the self employed are also engaged in wage and salary employment (Note).

Self Employment Gains in the Great Recession

Perhaps most striking is the fact that the number of entrepreneurs continued to grow in the Great Recession and what might be called the continuing Great Malaise. From 2007 to 2011, there was an increase of 1.8 million proprietors. This annual growth of nearly 450,000 was more modest than between 2000 and 2007, when the average number of proprietors grew 1.28 million, nearly three times as fast. The continuing growth in proprietors starkly contrasts with the loss of 5.9 million in private sector jobs. Government employment grew 44,000.

A Longer Term Trend

The data from 2000 to 2011 indicates an acceleration of an already developing trend of greater self employment, which can be traced back to at least 1970 (the earliest data readily available). In 1970, proprietors were 11.0 percent of employment, a figure that rose to 15.6 percent by 2000. The greatest increase occurred after 2000, when the number of proprietors increased 42 percent. In 2011, proprietors represented 21 percent of employment, nearly double their proportion in 1970 (Figure 3).

This increase in proprietors (and their generally smaller commercial establishments) tracks with the continuing decline in average establishment size (Figure 4). United States Bureau of Labor Statistics data shows that between 2002 and 2012, there was a loss of 2.3 million private jobs in establishments with 100 or more employees. Establishments with 500 or more employees experienced a reduction of 1.8 million jobs, 80 percent of the large establishment (100 and over) losses. These losses were nearly made up by gains in establishments with under 100 employees (2.1 million).

State Self Employment Trends

Self employment added the largest number of jobs in 40 states between 2000 and 2011 (Table). Its percentage increase exceeded both those of private and government employment in all but two states (North Dakota and Alaska)

Texas added the largest number of proprietors between 2000 and 2011. The Lone Star state added 1.26 million proprietors. Florida ranked second, added 970,000 proprietors, followed by California with 940,000. New York with its long laggard economic growth , added 820,000 proprietors. Georgia ranked 5th, adding 540,000. The next five included fast growing North Carolina (8th), as well as slower growing New Jersey, Illinois, Pennsylvania and Michigan (yes, Michigan).

The story, however, was much different among these states in wage and salary employment. Texas, with the nation’s most vibrant and business friendly big state economy (according to chiefexecutive.net), added 1.22 million wage and salary jobs, 960,000 of which were in the private sector. Florida did somewhat worse, adding only 201,000 jobs, 113,000 in the private sector. California lost 480,000 private sector jobs, while adding 62,000 government jobs. Public and government employment changed little in New York. Georgia lost 131,000 private jobs, while adding 87,000 to government payrolls, while New Jersey and Illinois suffered private sector losses of 155,000 and 355,000 respectively (Figure 5 and Table).











EMPLOYMENT CHANGE BY TYPE OF JOB: 2000-2011 Wage & Salary Employment Total Employment Private Government Total Proprietors Alabama (69,050) 22,297 (46,753) 154,522 107,769 Alaska 39,839 12,355 52,194 9,621 61,815 Arizona 126,805 51,509 178,314 245,934 424,248 Arkansas (8,806) 27,902 19,096 47,141 66,237 California (479,691) 62,143 (417,548) 941,071 523,523 Colorado (8,740) 70,077 61,337 209,084 270,421 Connecticut (64,857) 3,022 (61,835) 168,636 106,801 Delaware (11,550) 6,597 (4,953) 35,349 30,396 District of Columbia 46,402 27,180 73,582 29,288 102,870 Florida 113,353 88,063 201,416 968,006 1,169,422 Georgia (131,337) 87,525 (43,812) 537,451 493,639 Hawaii 33,157 17,126 50,283 35,638 85,921 Idaho 37,459 8,327 45,786 54,325 100,111 Illinois (354,730) (5,481) (360,211) 374,270 14,059 Indiana (180,865) 18,415 (162,450) 105,068 (57,382) Iowa 10,472 11,440 21,912 49,320 71,232 Kansas (17,794) 21,022 3,228 74,747 77,975 Kentucky (48,771) 39,826 (8,945) 86,259 77,314 Louisiana 8,380 (16,543) (8,163) 219,700 211,537 Maine (11,858) 1,060 (10,798) 23,994 13,196 Maryland 28,580 54,102 82,682 249,229 331,911 Massachusetts (96,684) (4,699) (101,383) 211,607 110,224 Michigan (666,239) (66,184) (732,423) 294,215 (438,208) Minnesota (3,680) 6,886 3,206 155,151 158,357 Mississippi (64,479) 5,696 (58,783) 87,067 28,284 Missouri (107,603) 12,903 (94,700) 138,189 43,489 Montana 38,149 7,163 45,312 31,068 76,380 Nebraska 15,922 12,470 28,392 42,849 71,241 Nevada 75,814 35,526 111,340 136,382 247,722 New Hampshire (7,892) 9,275 1,383 41,525 42,908 New Jersey (155,108) 21,622 (133,486) 405,353 271,867 New Mexico 48,017 11,506 59,523 37,120 96,643 New York 2,427 (5,997) (3,570) 818,861 815,291 North Carolina (58,042) 121,486 63,444 329,109 392,553 North Dakota 65,306 7,595 72,901 15,776 88,677 Ohio (514,436) (5,380) (519,816) 277,931 (241,885) Oklahoma 28,310 41,462 69,772 106,262 176,034 Oregon 19,047 16,878 35,925 95,406 131,331 Pennsylvania (11,087) 17,678 6,591 310,306 316,897 Rhode Island (15,349) (4,281) (19,630) 29,356 9,726 South Carolina (42,912) 9,998 (32,914) 242,447 209,533 South Dakota 28,301 7,155 35,456 20,290 55,746 Tennessee (84,441) 33,905 (50,536) 196,021 145,485 Texas 956,988 264,871 1,221,859 1,255,773 2,477,632 Utah 109,728 33,864 143,592 137,781 281,373 Vermont (4,419) 4,179 (240) 21,467 21,227 Virginia 90,766 64,639 155,405 282,009 437,414 Washington 77,224 62,267 139,491 170,512 310,003 West Virginia 8,796 9,736 18,532 20,765 39,297 Wisconsin (81,794) 13,783 (68,011) 148,572 80,561 Wyoming 33,972 10,034 44,006 21,077 65,083 United States (1,259,000) 1,364,000 105,000 10,698,900 10,803,900





The Future?

Robert Fairlie, one of the nation’s leading experts on self-employment and a professor at the University of California, Santa Cruz, associates much of the increase in proprietors during the Great Recession to higher unemployment rates, measured at the local level. This is consistent with the rise in self employment during the Great Recession and the huge wage and salary job losses. At the same time, the larger increases in the decade before the Great Recession may indicate a strong underlying trend toward self employment. Certainly, this is supported by the rise of the Internet, which provides cheaper access to information and more comprehensive marketing opportunities.

The future could see stronger self employment gains. As the baby boom generation reaches retirement age, it is likely that many former employees will turn to self employment to increase their incomes.

Finally, the increasing global competitiveness could continue to reduce establishment sizes and encourage greater self employment. Stronger business regulation, including the mandates of the new medical care system ("Obamacare") could result in stunted employment growth, or even losses, forcing more people into self-employment even if they continue to work with current employers as contractors.

America may not become a "nation of shopkeepers," like 19th century Britain, but is increasingly becoming a self-employed nation. It will be challenging for governments, both at the national and local level to develop regulatory and tax structures that encourages this entrepreneurial expression, and perhaps more problematic, figure out to aid their conversion into larger businesses.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.

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Note: This article uses Bureau of Economic Analysis employment counts --- the number of jobs, rather than employees (an employee may have more than one job). The database in this analysis includes full and part time employment. Last year's Forbes article used a different database, limited to people who make their livings principally from self employment.

Self employment photo by BigStockPhoto.com.