Thursday, September 8, 2011

Bad Trends for the Self Employed

Some very troubling data in this story in USA Today on the self employed - it further reinforces what a joke the birth/death model (which has 'created' some half a million jobs in the past year) in the monthly employment data is.  [Jan 27, 2008: Birth Death Model]  Supposedly a plethora of small businesses (too small to count in the surveys) are sprouting up across America the past few years (green shoots) if you believe the 'estimates' of the birth death model.  The reality seems more in tune with what we see down on Main Street.  (note - I was a bit surprised by this number myself as I figured that many of the corporate downsized were now trying to start their own businesses, but it appears not as much as I thought)

  • In August, 14.5 million people were self-employed, down 2.1 million from the most recent peak in December 2006, according to Bureau of Labor Statistics data.
  • The number of "incorporated" self-employed workers — those who incorporate to gain legal protection and other benefits — began its decline in 2008. Last month, 5.1 million people were in this category, down 726,000 from August 2008.
  • The decline is a "troubling" trend, says Scott Shane, professor of entrepreneurial studies at Case Western Reserve University. This category, which usually represents businesses that hire more employees than the "unincorporated" self-employed, was showing healthy growth before the recession, he says.  
  • Unincorporated self-employed — at 9.4 million last month ....(is) hovering at its lowest level in 25 years, says BLS economist Steven Hipple.

The article points to a few major issues on why the self employed are not thriving during this 'rebound' (again I'd point to lack of end demand as reason #1 but not cited in the story)
  • Financial issues. With tightened bank lending, reduced savings and sluggish consumer spending, many can't afford to start a business or keep an existing one going. Adding to the trouble: Diminished home values make it difficult to get the home equity loans that the self-employed often use for capital. (that is a very good point - home as the ATM machine was a big driver of spending and 'credit' mid decade)
  • Vocational moves. Self-employed workers who have lost income-generating opportunities — such as real estate agents and construction workers who were victims of the housing market's slide — could be moving to more secure lines of work or opting out of the workforce altogether, says Ellen Rissman, a Federal Reserve Bank of Chicago economist. 
  • Psychological worries. "Constant news about the difficult economy makes people hesitant to venture out on their own," says Kristie Arslan, CEO of the National Association for the Self-Employed. (reduced risk taking which is a strike to the heart of the American experience - instead a generation hunkers down just content to survive)

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