U.S. lost 1 million self-employed firms

The United States has lost more than a million self-employed individuals over the past three years, since the beginning of the recession. Small businesses are important because small businesses make up 99.7% of all employers in the country.

April 19th, 2011, 5:00 am
posted by Jan Norman
The Orange County Register

The United States has lost more than a million self-employed people in the past three years when the recession started, according to the Bureau of Labor Statistics.

In December 2010, the nation had 9.3 million unincorporated self-employed, 5.6% fewer than December 2007. The number of incorporated self-employed, 5.3 million, was 9.4% fewer:

self employed firms

While the unincorporated self-employed often work by themselves without employees, the incorporated self-employed often have employees. Some 80% of U.S. businesses have no employees, according to the Bureau of Labor Statistics.

Scott Shane, visiting scholar at the Federal Reserve Bank in Cleveland notes in an article, “A recent study suggests that in 2009 the number people becoming self employed spiked to its highest level in more than a decade. Unfortunately, a careful look at multiple sources of data shows that the Great Recession was actually a time of considerable decline in entrepreneurial activity in the United States.”

The discrepancy, he says, is that while the number of people between the ages of 20 and 64 who became self-employed increased from 300 per thousand a month in 2007 to 340 per thousand in 2009, many existing self-employed went out of business during the recession.

In 2009, 553,000 new businesses with employees were started, the lowest number since 1992, said Shane, a professor of entrepreneurial studies at the Weatherhead School of Management at Case Western Reserve University.

The loss of the incorporated self-employed is important, Shane said, because “corporations have more of an economic impact in general than sole proprietorships” because they tend to be larger and provide more jobs.

Here’s the Bureau of Labor Statistics’ look, over time, at jobs provided by unincorporated self-employed people:

Unincorporated self-employed people

“The decline in the number of employer businesses in the Great Recession was 6.5 times the number of employer businesses lost in the last two recessions combined,” Shane said.

Here’s a look at the loss of employer businesses in the past three recessions:

net change in number of businesses

He cited BLS data that from 2007 through 2009, the number of employer firms declined from 6.05 million to 5.9 million, a loss of 146,000 employer businesses.

“Virtually all of the disappearing companies were small businesses because, as the (Small Business Administration) explains, small businesses make up 99.7% of all employers in this country. While the number of employer businesses also fell in the previous two recessions, the magnitude was much larger in the Great Recession,” Shane said.

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