Self-Employment in the United States: About 1 in 9 Workers Was Self-Employed in 2009; as in the Past, Self-Employment Continues to Be More Common among Men, Whites, Asians, and Older Workers, and in the Agriculture, Construction, and Services Industries

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Self-employment continues to be an important source of jobs in the United States. In 2009, 15.3 million individuals were self-employed, including both those who had incorporated their businesses and those who had not. The self-employment rate, which is the proportion of total employment made up of the self-employed, was 10.9 percent. Of all self-employed persons, 9.8 million, or nearly two-thirds, were unincorporated; the remaining 5.5 million were incorporated. From 2003 to 2009, the total self-employment rate has held steady; a small decline in the unincorporated self-employment rate was partially offset by a similar rise in the rate of incorporated self-employment. (See tables 1 and 2 and chart 1.)

Since the late 1940s, data on self-employment have been collected regularly as part of the Current Population Survey (CPS), the official source of data on employment and unemployment in the United States. (1) In addition to classifying employment by occupation and industry, the CPS subdivides the employed by "class of worker"--that is, wage and salary employee, self-employed, and unpaid family worker. (See box, p. 40.) In 1967, it became possible to identify another group of self-employed workers: those who had reported themselves in the CPS as self-employed and had incorporated their businesses. Individuals choose to incorporate their businesses for a number of reasons, including legal and tax considerations. Since 1967, the official estimates of self-employment published by the Bureau of Labor Statistics (BLS, the Bureau) have included only the unincorporated self-employed. Although it is possible to identify the incorporated self-employed separately, these individuals are counted as wage and salary workers in the official statistics because, from a legal standpoint, they are employees of their own businesses.

This article describes the CPS measurement of unincorporated and incorporated self-employment, discusses historical trends in these data series, examines the effect of recessions on self-employment, provides an overview of the characteristics of self-employed workers, and concludes with an examination of the unincorporated self-employed who have paid employees. Because there are differences between the unincorporated and incorporated self-employed, the two groups will, for the most part, be discussed separately in what follows.

Trends in self-employment

Unincorporated self-employed. The proportion of total employment made up of the unincorporated self-employed has fallen gradually since 1967.2 (See table 1.) The secular decrease in unincorporated self-employment is due primarily to two reasons. The first, and chief, reason is the well-known decline in agricultural employment, a dropoff in an industry in which a large share of employment is made up of the self-employed. At the same time, there also has been a steady decrease in the agricultural self-employment rate since 1967. The decrease in self-employment in agriculture is due mainly to a decline in the number of smaller farms and the emergence of large farming operations. According to the National Agricultural Statistics Service, in 1967 there were 3.2 million farms with an average acreage of 355 acres; by 2009, the number of farms had fallen to 2.2 million and the average acreage had risen to 418 acres.

A second reason is an increase in the likelihood of businesses to incorporate. (3) Self-employed workers typically incorporate their businesses in order to receive traditional benefits of the corporate structure, including limited liability, tax considerations, and the enhanced opportunity to raise capital through the sale of stocks and bonds. (4) From 1994 to 2009, the unincorporated self-employed's share of nonagricultural employment declined slightly. (See table 1 and chart 1.)

Over the same period, the proportion of nonfarm employment made up of the incorporated self-employed edged up from 3.4 percent to 3. …