When a recession hits, it's more likely you'll start your own businesses — even if you didn't plan to
- Nearly 17 million Americans are self-employed, the highest share of the workforce since 2008.
- Self-employment is "countercyclical", says the NASE's Keith Hall, meaning many people turn to it during recessions.
- If another recession is on the horizon, it could push even more Americans to self-employment.
If — as many have speculated — another recession is indeed around the corner, expect the number of self-employed Americans to rise.
That's according to Keith Hall, President and CEO of the National Association for the Self-Employed — a nonprofit for the self-employed and small businesses. Operating since 1981, the NASE offers members resources that range from educational tools, legal help, advocacy, and discounts.
Hall says that growth in self-employment tends to be "countercyclical." When employees lose their jobs during economic downturns, "people still have to find a way to feed their family," with many turning to self-employment. Some, like a plumber that was laid off and starts fixing toilets for neighbors in need, for example, "didn't even plan to become self-employed," Hall says, but found themselves there regardless.
"The stronger recovery for self-employed workers is consistent with trends in previous recessions in which some workers who lost their jobs have been observed to turn to self-employment," Rakesh Kochhar, a senior researcher at Pew Research Center, previously told Insider.
This trend played out during the pandemic recession
Per Bloomberg calculations, there were roughly 16.8 million self-employed Americans as of June, accounting for over 10% of the workforce and the highest share since 2008. While the number of self-employed fell to 12.7 million in 2020, it returned to pre-pandemic levels only a year later, marking a stronger recovery than that of non-self-employed workers.
In addition to self-employment's countercyclical nature, experts have pointed to several other explanations for the rebound. As increasing childcare responsibilities pulled some parents out of the labor force during the pandemic, self-employment offered some the flexibility they needed.
Some Americans, feeling emboldened by increasing worker power and talk of the "Great Resignation," assessed their careers, and in some cases, decided they wanted to be their own boss. Others have wagered it is their best shot at getting ahead financially, particularly given inflation-adjusted earnings are declining at their fastest rate in 40 years.
Then, there are the "dreamers," those that started their own business less out of desperation, but because a layoff nudged them to finally pursue an idea.
"Those people said, "You know what? I've always wanted to be a painter," or, "I've always wanted to sell the rocking chairs that I make," Hall says. "Now is my chance to do that because I have an opportunity."
We'll enter the next recession with a new professional dynamic
Hall, believes the pandemic generated a "fundamental shift" in the American economy, something that has created yet another force driving workers to self-employment.
"I think for the first time ever, it is becoming much more acceptable to have people working from home," he says.
Hall believes corporations are becoming more comfortable doing business with self-employed individuals that are working remotely, something that will create a "permanent shift in the move towards self-employment." Given this enhanced legitimacy of remote self-employment, as well as the consistent desire for remote work from many employees, he believes more Americans will consider self-employment.
"They'll say, why am I spending money on childcare? Why am I spending money on gasoline when I can do all this from home? And if my company won't let me work from home, then I'll do the exact same thing I'm doing from home as a self-employed business owner."
With this new dynamic entering the equation, Hall believes that if there is a significant recession, there will be growth in self employment "even on top of what we've seen from COVID."
A recession isn't a good time to go into debt to start your business
In a recessionary environment, Hall recognizes that the self-employed will face plenty of challenges, noting that rising interest rates are already constraining small businesses. While he wouldn't say it's a "bad time" to start a business, he cautions entrepreneurs planning to take on a lot of debt in the early stages of the company.
"If the only thing that's going to get you to month one or month four of your new small business is a $250,000 line of credit at a bank, maybe now is not the right time to embark on that first plan."
Moving forward, however, Hall says it's "great time to be self employed" — adding that the NASE added more new members during the pandemic than at any time he can remember.
"No time in my adult career has the voice of small business been louder or more powerful than it is today," he says.
The NASE hopes to use this power to push for legislative action on issues that range from tax law, the affordability of healthcare, retirement plan support, and other measures that will benefit the self-employed. Given small businesses create two-thirds of US jobs, Hall believes they are deserving of this support.
"Big businesses pay tax at one rate, small businesses pay tax at another rate," he says. "Health insurance premiums that are paid for employees of big businesses are taxed one way. Health insurance premiums pay for self-employed tax another way. Those things are inequitable."
If some of the NASE's desired changes are eventually enacted, Hall believes the improved landscape will be yet another factor driving growth in self-employment in the years to come.
from Business Insider https://ift.tt/1cqQkgR
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