Academic journal article Monthly Labor Review

Self-Employment in the United States: An Update: Self-Employment Continues to Be an Important Source of Jobs in the United States; as in the Past, the Incidence of Self-Employment Continues to Be Highest among Men, Whites, Older Workers, and in Agriculture, Construction, and Services Industries

Academic journal article Monthly Labor Review

Self-Employment in the United States: An Update: Self-Employment Continues to Be an Important Source of Jobs in the United States; as in the Past, the Incidence of Self-Employment Continues to Be Highest among Men, Whites, Older Workers, and in Agriculture, Construction, and Services Industries

Article excerpt

Following a long-term decline, the proportion of total employment made up of self-employed workers has leveled off in recent years. In 2003, 10.3 million workers were self-employed. The self-employment rate--the proportion of total employment made up of the self-employed--was 7.5 percent, up slightly from the rate in 2002. Reflecting the protracted shift away from agricultural self-employment, the vast majority (90.8 percent) of the self-employed in 2003 were in nonagricultural industries; in contrast, this proportion was 56.7 percent in the late-1940s.

Information on employment and unemployment is available from the Current Population Survey (CPS). (1) In addition to classifying employment by occupation and industry, the CPS subdivides employment by class of worker--that is, wage and salary employment, self-employment, and unpaid family work.

This article discusses the CPS measurement of self-employment, addresses historical trends in self-employment, and provides an overview of characteristics of the self-employed.

How are the self-employed measured in the CPS?

Since January 1994, employed respondents in the monthly CPS have been asked the following question: "Last month, were you employed by government, by a private company, a nonprofit organization, or were you self-employed?"

Individuals in the CPS who respond that they were employed by government, a private company, or a nonprofit organization are classified as wage and salary workers. Individuals who respond that they are self-employed are asked: "Is this business incorporated?" Individuals who respond "yes" are classified as wage and salary workers and are treated as employees of their own businesses. The "no" responses are classified as unincorporated self-employed--the measure that typically appears in Bureau of Labor Statistics publications.

Although the basic questions to determine class of worker status have undergone few changes since 1948, there is a break in series that took effect in 1967. Prior to that year, there was no question on incorporation of a business for the self-employed. Beginning in 1967, individuals identified as incorporated self-employed were classified as wage and salary workers. As table 1 shows, there was a substantial decline in self-employment beginning in 1967 due to the fact that these individuals were now classified as wage and salary workers. Other changes were implemented with the redesign of the CPS in 1994. (2) Furthermore, in 2003, the CPS adopted the 2002 North American Industry Classification System (NAICS) and the 2000 Standard Occupational Classification (SOC) system. The switch to these new classification systems affects comparability of the estimates of employment by class of worker. (3)

Table 2 shows data on incorporated self-employment since 1989. The proportion of total employment composed of the incorporated self-employed was nearly unchanged at 3.0 percent during the 1989-93 period; the implementation of the redesign of the CPS in 1994 caused the proportion to increase to 3.5 percent. (4) Since 1994, the rate of incorporated self-employment has ranged between 3.2 and 3.6 percent. Estimates of incorporated self-employment are available prior to 1989. These data show that incorporation has become increasingly common over time, rising from 1.5 million in March 1976 to 2.1 million in 1979 and 2.8 million in 1982; as a proportion of total employment, the rates rose from 1.8 percent to 2.2 percent to 2.8 percent over these points in time. The move toward incorporation is a function of many complex factors. Workers will typically incorporate their business for 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.

Trends in self-employment

The proportion of individuals who are self-employed has fallen steadily since the late-1940s. …

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