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July 23, 2012

Are the Self-Employed Becoming Extinct?

It's an interesting question and we have data to back up the fact that there is definitely a problem. In our quest to find solutions for job creation, we began to wonder how the health of our biggest job creators (small businesses) were doing. We couldn't find much on small businesses, but we came across a startling statistic when we looked at how many people were self employed.

Since 2007, self employment has been on a virtual downward slope.  In July 2009, when the recession 'ended,' there were 9.77 million self employed persons.  In April, that number hit a 2012 low of 9.3 million and currently sits at 9.5 million.  We can only hope this recent rebound has legs to it, but the question must be asked, "Why is self employment so weak?"

1) Why work when you can be paid to be unemployed?

Someone who loses their job and starts a business (or becomes self employed) is not guaranteed the up to $400 per week in unemployment benefits they would be paid if they did nothing.  In fact, income earned while on unemployment is legally required to be reported so it can be deducted from benefit payments.  Therefore, if you don't make more than $400 per week (starting your first week), you're working for nothing.  What an incentive!

2) Innovation versus Regulation

As previously mentioned last week, we are in a battle of innovation versus regulation and right now, regulation is winning.  How many industries are only full of large corporations?  How many technologies do we have the ability to produce, yet the massive regulatory framework causes huge capital requirements to attain them?  The opportunities for self-employed people to find success are drying up.

3) Education

Let's face it, we are training Americans not to be entrepreneurs.  We are training people to be workers.  Sure, our teachers tell us we can be anything we want to be, but a majority of schooling is about "falling in line."  Furthermore, how many schools have taught the basics of entrepreneurship?  One basic component is the payment of payroll taxes.  How many people know how to do this on their own?  Perhaps paying payroll taxes is too complicated, which would take us back to #2.  Nonetheless, our education isn't teacher leadership and self-sustainability, it's teacher follower-ship and dependency.

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