NONEMPLOYER BUSINESSES
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Why is this important?
Business vitality is essential for growing and sustaining a region’s economic viability. While firms contribute to the local economy by hiring employees, increasing numbers of individuals are creating the means to work for themselves. The ability to go into business for oneself not only characterizes part of the American Dream, but it is also a measure of economic flexibility in terms of the ability of businesses and the workforce to adapt to new market conditions.
Typically, these nonemployer businesses are self-employed individuals running very small businesses that are not necessarily their main source of income. In 2005, the number of U.S. businesses without payroll surpassed 20 million. Businesses without employees make up roughly 78% of all U.S. businesses1, and they are growing at a faster rate than employment. For the U.S., from 2004 to 2005 these businesses grew by 4.4%2 while total employment expanded by 1.8%3.
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How are we doing?
Long Island boasts large numbers of businesses without payroll. Although growth in these establishments is slower than for the U.S., Long Island’s nonemployer establishments are growing faster than employment.
Alongside some of the most dynamic areas in the country such as Los Angeles, Chicago and Miami, Nassau and Suffolk Counties rank 15th and 20th of all U.S. counties in total number of nonemployer businesses. From 2004 to 2005, such businesses on Long Island’s two counties grew in number by 2.7% and 2.1% respectively while nationwide growth was 4.4%.
Business Services makes up the largest share of Long Island’s nonemployer establishments, 27%, and these are primarily in Professional, Scientific, and Technical Services. Building contractors make up 18% of the region’s businesses without payroll followed by Finance & Insurance, Health Services, and Retail.
Recent research cautions that the characteristics of self-employment have changed over the last 30 years in terms of the conditions for becoming self-employed as well as the outcomes. Self-employment is on the rise and the activities associated with self-employment have shifted from shop keepers and craftspeople to activities that are more diverse, unstable and transitory. 4Annual average receipts reported for Long Island’s nonemployer firms vary by cluster industry. In Transportation & Freight Services annual receipts averaged $73,000 in 2005 while at the low end, Biomedical reported $35,000. These average values also include part-time activities.Looking specifically at Long Island’s cluster industries, the growth in businesses without employees has outpaced the growth of employment in firms with payroll. Between 2000 and 2005, the average annual growth rate for nonemployer establishments was seven-times faster. With the exception of employment growth in Health Services and Regional Recreation, across clusters nonemployer establishments grew at a faster rate. Most notably, nonemployer establishments in Information/Communication Services grew at an annual rate of 5.8% while employment dropped by 2.3%. Similarly, nonemployer establishments in Manufacturing grew annually by 1.7% while jobs were shed at an annual rate of 4.7%.
Although Nassau and Suffolk Counties rank among the top 20 U.S. counties in terms of total number of nonemployer establishments, across all of Long Island’s cluster industries, average annual growth rates lag those for the U.S.
1Mike Bergman. 2007. 'Lone Wolves' Boost Nonemployer Businesses Past 20 Million,” Press Release. Nonemployer Statistics, U.S. Census Bureau. (July 25, 2007). www.census.gov/Press-Release/www/releases/archives/economic_census/010314.html
2Ibid
3Percentage change, annual total U.S. employment. data.bls.gov/PDQ/servlet/SurveyOutputServlet;jsessionid=f0302f829fe5$3FyL$3F
4Richard Arume, and Walter Muller, eds. 2004. The Reemergence of Self-Employment: A Comparative Study of Self-Employment Dynamics and Social Inequality. Princeton, NJ: Princeton University Press.