PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

State of Entrepreneurship Update: A Look at Self-Employment Trends

By at 10 March, 2021, 12:13 pm

by Raymond J. Keating-

As we look forward to, and hope for, a solid economic recovery and robust economic growth, it is critical to understand that entrepreneurship and private investment will serve as the engines of growth. Recovery and expansion will not be about government spending; instead, it will be about entrepreneurs and investors creating, rebuilding and expanding businesses.

With that in mind, let’s take a look at a couple of indicators regarding the state of entrepreneurship.

The Hole: Big Number of Small Business Closures

First, the latest from TracktheRecovery.org, a project of Harvard and Brown universities and the Bill and Melinda Gates Foundation, estimates (as of February 23, 2021) that 37.7 percent of U.S. small businesses have closed since January 2020.

Using SBA estimates of the number of small businesses, that translates into a breathtaking 11.9 million closed small businesses. If we zero in on businesses with employees, this would indicate that 2.3 million of those firms are closed.

Looking at broad sectors, leisure and hospitality has been hit hardest by far, with an estimated 53.3 percent of small businesses in that sector closed.

Now, we don’t know how many of these firms are closed permanently. But either way, this is a deeply distressing and troubling level.

One measure of small businesses offered by the U.S. Bureau of Labor Statistics is the number of self-employed. BLS self-employment data are broken into two categories – unincorporated self-employed and incorporated self-employed. Self-employment data tends to capture very small businesses, including startups.

Combining unincorporated and incorporated data, and since the incorporated data is not seasonally adjusted, we can compare the same periods from each year. As noted in the following chart of February data in each year, the decline in total self-employed from February 2020 to February 2021 was substantial, coming in at a decline of about 738,000. That’s the largest decline going back to 2000.

Data Source: U.S. Bureau of Labor Statistics. Author calculations.

In addition, the February 2021 level of total self-employed stood just below the 2011 level.

However, it’s also worth keeping in mind that month-to-month, this data can be volatile. The following chart smooths this out some by offering annual averages. However, for 2020, two months of pre-pandemic data are included, and obviously, we do not get a look at the first two months of data that are available for 2021. Nonetheless, we see a decline in 2020.

Data Source: U.S. Bureau of Labor Statistics. Author calculations.

Self-Employment Recovery Critical to Strong Economic Growth and Recovery

The above trends make another point clear that we need to keep in mind, that is, total self-employment, even before this pandemic, failed to recover to the number achieved prior to the Great Recession (i.e., the recession from December 2007 to June 2009).

So, the U.S. economy not only needs to fully recover in terms of lost entrepreneurship due to the COVID-19 pandemic, but from a recession that we suffered through more than a dozen years ago.

All of this speaks to public policy needing to be shifted in a pro-entrepreneur, pro-investment direction – such as in terms of tax and regulatory relief, reining the size of government, advancing free trade, and sound monetary policies – as well as an assessment of other areas that affect entrepreneurship, such as in terms of education, immigration, and cultural attitudes.

Entrepreneurship always has been central to the U.S. economy, and served as a competitive advantage in the international arena. If the U.S. loses its entrepreneurial edge, a sluggish, under-performing economy will become the unfortunate norm.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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