Self-Employed: PROBLEM Page 5 Taxonomy of Self-Employment Convoluted
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FEDERAL RESERVE BANK OF MINNEAPOLIS JANUARY 2012 fedgazette VOL. 26NO. 1 Regional Business & Economics Newspaper minneapolisfed.org More on Self-Employment … ANATOMY OF THE MEASUREMENT Self-employed: PROBLEM page 5 Taxonomy of self-employment convoluted. To be, or not to be SOLAR FORECAST: SUNNY WITH A CHANCE Unfortunately, that’s a question OF RAIN page 7 without easy answers Solar industry remains dependent on subsidies. THE OTHER, SILENT FLOOD page 11 Closed-basin regions struggling with high water and no drain plug. 2012 FORECAST MODERATE ECONOMIC GROWTH EXPECTED IN 2012 page 16 Favorable signs tempered by headwinds. MANUFACTURING ACTIVITY UP AGAIN IN 2011 page 17 Faster growth expected in 2012. BUSINESS LEADERS EXPECT SOLID GROWTH page 18 By RONALD A. WIRTZ Out on the proverbial street, it’s hard District businesses still face some challenges. Editor to tell which side is winning. Many sources, for example, argued that self- The Quick Take FORECAST page 19 Entrepreneurs and other self-employed employment spirits are getting restless workers have long been celebrated as and more energetic because unemploy- Anecdotes abound regarding the heart of the American dream. They ment is stubbornly high, while workers the direction of self-employ- are the alchemists turning blood, sweat with jobs face flat wages, cutbacks in ment in today’s economy, and and tears into a successful, self-directed hours and benefits, and other job-secu- the overall trend can be tricky adventure. rity concerns. to read. Recessions are brutal But since the recession, there is con- Patrick Boulay is the head of New on existing and prospective siderable debate over whether they are Business Minnesota, a networking organ- self-employed individuals, but suffering a heart attack or feeling a surge ization for startups and other small busi- self-employment is also a com- of adrenaline. Even the most basic trend- nesses based in the Twin Cities. “I talked mon path for many jobless spotting is tricky because recessions both to an accountant friend … and both of people looking for income. boost and depress self-employment: On us have anecdotal evidence that entre- Available data, though spotty one hand, a struggling economy punish- preneurship [and] self-employment and not very timely, suggest es both existing and prospective do-it- [are] being seen as an alternative to a that self-employment, variously See the enhanced fedgazette online myselfers. At the same time, self-employ- job. I had two calls last week from people defined, has declined since at minneapolisfed.org including ment is a common path for jobless indi- in their 50s who were starting businesses the onset of the recession. fedgazette Roundup, the regional viduals desperate for some income, even because they don’t think they have a economy blog if on a temporary basis. chance at another job.” Continued on page 2 Page 2 fedgazette SELF-EMPLOYMENT JANUARY 2012 Self-Employment from page 1 He added, “My accountant friend is neurs must carefully consider the eco- The self-employed outnumber seeing more [self-employed] as well. … nomic environment. Conditions today, Chart 1 all other businesses combined by She runs into people whose work envi- with depressed demand for goods and No longer the boss ronment has been hit hard by layoffs. services, are likely to keep many on the a large margin. Minnesota had Nonemployer firms and receipts They are working twice as hard as they sidelines. Percent change, 2007 to 2009 used to for the same money just picking “Times are too unsure. We don’t 362,000 so-called nonemployer up the slack. For that kind of effort, they have predictability,” Riley said. “And firms in 2009. That’s almost two 0 are finding self-employment more and when a mom and pop sit down at the more attractive.” kitchen table [to consider the pros and a half times the number of Nonsense, say other observers. A and cons], they say now is not the time business establishments with recession and torpid recovery are the to do this.” -5 worst times to strike out on your own, This self-employment debate is at least one employee. whether chasing a dream or merely important because research (profiled hustling to put food on the table. Riley in the July fedgazette) shows that overall Johnson, state director of the National job growth in an economy comes Self-defined -10 Federation of Independent Businesses largely from growth at new firms, The self-employed are all around us. (NFIB) in Montana, said the majority including self-employment endeavors They care for children, fix homes and of new business owners “really want to that might start with modest expecta- computers, crunch tax returns, cut hair, -15 go into business for themselves.” But tions and means. move freight, plan your retirement, sell he noted that prospective entrepre- The unfortunate part of this “yes, you knick-knacks and offer myriad other they are; no, they aren’t” debate regard- goods and services to consumers and ing self-employment is that there are no other businesses. -20 definitive answers. Getting an accurate In fact, the self-employed outnumber Editor’s note: The nomenclature of picture of the self-employed, especially all other businesses combined by a large Number of firms this topic can complicate the expla- since the recession, is more complicated margin. Minnesota had 362,000 so-called Receipts (constant 2009 dollars) nation of trends. Self-employment than it sounds, and the results are laden nonemployer firms—someone working implies a nonemployer status, but -25 with footnotes. Government data, which solo, with no employees—in 2009. That’s MT MN WI US SD ND most databases also do not clearly sniff the trail of employment and busi- almost two and a half times the number delineate the matter. Other terms Source: U.S. Census Bureau, from ness activity with varying degrees of of business establishments with at least also serve as common proxy meas- Internal Revenue Service tax returns obsession, track the activities of the self- one employee, according to the latest fig- ures for self-employment. For exam- employed with difficulty—partly ures from the Internal Revenue Service ple, “sole proprietor” is often used because this population comes in all (IRS), and about 13 percent of total interchangeably with self-employ- shapes, sizes and activity levels, and employment in the state. recession, but my billable hours have ment (including in this article), tracking it becomes the research equiva- But recessions are bad for business, gone up to make up the difference.” though they are slightly different lent of herding cats. and that includes businesses where The recession has hit self-employ- from each other. Sole proprietor- As a result, what follows might best owner and worker are the same per- ment in certain industry sectors harder ships are not prevented from having be called a kaleidoscopic view of self- son. From 2007 through 2009, the than others. Self-employment grows employees—“sole” refers to the employment. Seen from several data number of nonemployer firms in each and declines in tandem with all firms in number of owners, not workers; angles, a complicated, multifaceted district state dropped between 2.4 per- a particular sector. For example, the nonetheless, data suggest that only picture of self-employment emerges. By cent and 6.3 percent, according to housing boom fueled growth in con- about 5 percent of sole proprietors most broad measures, self-employment data from the U.S. Census, using struction and real estate, and helped have employees. Where possible, appears to be declining, at least income tax returns (see Chart 1). nonemployer firms in these sectors this article attempts to point out through 2009. At the same time, cer- Maybe worse, receipts from these grow by 13 percent to 15 percent small distinctions in populations tain hard-to-measure types of activities businesses saw an even bigger drop (respectively) in Minnesota from 2003 being measured and discussed. But might be on the rise as more people across district states. Riley, from the to their peak in either 2006 or 2007. for the purposes of this article, self- seek stopgap income opportunities Montana NFIB, is a public affairs consult- And when these sectors slumped with employment refers to those who while they wait for the economy and ant, and the NFIB has been a client— the recession, so did self-employment work at a small business (incorporat- the traditional labor market to right thankfully—for the past 28 years, he said. in them (see Chart 2). ed or unincorporated) that they also themselves. But since the recession, “my clients have own, regardless of employer status. gone down, and my income has gone down steadily for several years.” Yes, but Todd Klingel, president and CEO of The self-employment story doesn’t nec- the Minneapolis Chamber of Commerce, essarily end there. While instructive, FEDERAL RESERVE BANK OF MINNEAPOLIS said sole proprietors and other small nonemployer data are but a single, Regional Business & Economics Newspaper fedgazette businesses are getting squeezed from crude brush-stroke on the portrait of two sides. “Companies are postponing this expansive, shape-shifting endeavor. ISSN 1045-3334 work, and there is more competition for Unfortunately, data limitations mean Subscriptions are available without charge. Back issues are available EXECUTIVE EDITOR Kei-Mu Yi [remaining] jobs, creating lower margins.” there’s a fair amount of conjecture on the Web. Articles may be reprinted if the source is credited and Public SENIOR EDITOR David Fettig Affairs is provided with copies. Permission to photocopy is unrestricted. In early November, the fedgazette involved in interpreting trends. Send correspondence to Public Affairs, Federal Reserve Bank of EDITOR Ronald A.