The decline in the self-employed is a “troubling” trend.

Fewer Americans are choosing to be self-employed.  14.5 million people were self-employed in August.  That number is 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 — has changed little since last spring. It’s hovering at its lowest level in 25 years, says BLS economist Steven Hipple.

Contributing to the drop-off:

•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.

•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.

“(Some people think) ‘I’m sitting at a desk and the phone isn’t ringing. Why am I doing this? When things get better, maybe I’ll try this again,'” she says.

•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. Many have concerns about how health care reform, tax policy and other regulatory issues could affect a new business, she says.

Folks receiving unemployment benefits also fret about trading in a steady check for the often-risky world of self-employment. Even if someone has a viable business idea, they still have to do a “cost-benefit analysis” to see if losing those benefits is worth the risk, Arslan says.

Those already running a business are also worried: Slightly more than half of self-employed individuals with no employees have an overall lack of confidence in the future of their business, vs. 36% of all small-business owners, according to a National Small Business Association’s 2011 midyear report. 

Via USA Today