To Obama’s economists, on behalf of microbusinesses

Posted on | November 11, 2008 |

(The following is a letter I sent to the Obama Transition Team via Change.gov. In spite of the fact that they invite us all to share our thoughts, I don’t know that I expect anything to come of it. But, under the circumstances, I felt it was the least I could do.)

As you turn your attention to the economy, I would like to make you aware of a segment of the business population that is routinely ignored by policy makers but that is certain to grow in importance for middle class families over the next few years: that is, nonemployer businesses (firms with no paid employees other than the business owner or owners).

There were 20.8 million nonemployer businesses in 2006; as of 2005, they constituted 77% of all U.S. firms. Because they do not generate jobs as that process is traditionally understood and because, individually, their average annual receipts are relatively low, economists tend to dismiss them as irrelevant phenomena. However, they do matter in a number of ways.

In this economic climate, I think you will find that the only still-functioning engine of job creation is self-created jobs from new nonemployer businesses. In 2002-2003 (our last recession), while the economy was losing an average of 38,500 jobs per month, new self-created jobs (i.e., new nonemployers) were launching at an average rate of 85,000 per month. It is reasonable to expect another, similar spike in the nonemployer population to begin next year.

Since individuals forced into entrepreneurship in this way often discover that they prefer self-employment and do not return to the traditional workforce when the economy improves, the federal government should consider ways to support nonemployer businesses rather than viewing their existence as some sort of labor market failure.

In addition, part-time self-employment is also an income patching strategy being used in many households to offset the wage stagnation we’ve seen over the last decade. And nonemployer businesses provide a workforce for other nonemployers, for microbusinesses, and for domestic corporate outsourcing.

In short, please be open to the idea that, in some segments of the economy, the nature of the employer/employee transaction has changed in ways that may be invisible to your economists because they are not currently being measured. At the same time, one thing is clear: regardless of what incentives you put into place, businesses will not create jobs unless they have sound business reasons to do so. Under the circumstances, it behooves your economic team to become educated about nonemployer firms.

While they may collectively generate only a small percentage of GDP on an annual basis (7.5% in 2006), the fact is that self-employment is what Americans are doing right now. For that reason, if for no other, they are worthy of your attention and support.

If you have any questions or require further information, please feel free to contact me.

Dawn Rivers Baker
Editor/Publisher
The MicroEnterprise Journal


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Dawn Rivers Baker, microbusiness journalistDawn Rivers Baker, aka The Journal Blogger, is the editor and publisher of The MicroEnterprise Journal, and the self-proclaimed Socrates of the small business blogosphere. See her official bio to learn more.


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