ANIL RUPASINGHA

Self-employment as a Jobless Recovery Strategy for Local

Communities

Rupasingha, A. and S.J. Goetz (2011), “Self-Employment and Local Economic Performance: Evidence from US Counties,” Papers in Regional Science, DOI: 10.1111/j.1435-5957.2011.00396.x

1

What area do you cover?

2

13%

9%

52%

4%

22%1. Local (neighborhood/city/county)

2. Metro-wide

3. Statewide

4. National

5. Other

What type of area do you work in?

3

78%

0%

9%

13%1. Urban

2. Suburban

3. Rural

4. Combination

Are you a…

4

4%

9%

0%

13%

57%

13%

4%1. Student

2. Professor/Researcher

3. Economic Developer

4. Planner

5. Nonprofit

6. Financial Institution

7. Other

Disclaimer

The views expressed in this presentation are the views of the speaker and do not

necessarily reflect the views or policies of the Federal Reserve Bank of Atlanta or the

Federal Reserve System.

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Outline

1. Labor market outlook

2. Self-Employment as an alternative to formal employment?

3. A Framework for understanding the impact of self-employment on local economic performance

4. Empirical evidence on the impact

5. Conclusion and opportunities

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Graphing the Recession’s Impact

No other U.S. post-war recession has been as severe

By Ilan Kolet

The latest recession resulted in more lost jobs and output than any recession in the last 50 years.

Source: Business Week, August 29 – Sept. 4 2011

7

8

Number of unemployed persons per job opening

The unemployed persons per job opening ratio was 4.3 in July 2011.

The number is down from its recent high, but in part that reflects withdrawal from the labor force

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The scope of the jobs deficit

The U.S. is currently 6.8 million jobs below where it was when the recession started.

But working-age population grows as the population expands.

In the three years and seven months since the recession started we needed to have added around 4.3 million jobs to keep the unemployment rate from rising.

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Civilians Unemployed for 27 Weeks and Over

In 2011, 6 million people were chronically unemployed (27 weeks or over), slightly lower than 2010

This number may not count everyone. Some may have gone back to school or are doing something else while waiting for the job market to improve.

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Employment conditions in your community have…in the last six month

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4%

25%

33%

38%

0%1. Improved significantly

2. Improved somewhat

3. Stayed the same

4. Worsened somewhat

5. Worsened significantly

Employment conditions in your community will…in the next six month

13

4%

17%

22%

57%

0%1. Improve significantly

2. Improve somewhat

3. Stay the same

4. Worsen somewhat

5. Worsen significantly

What is the main barrier to employment in your community?

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9%

0%

0%

0%

17%

30%

43%1. No jobs

2. Skills mismatch

3. Poor soft skills

4. Drug and alcohol use

5. Felony record

6. No barriers

7. Other

For some unemployed, self-employment may be their best hope

Over time, more people in the U.S. have turned to self-employment as a source of income. This trend has revealed a remarkable labor market

phenomenon in the U.S.

Self-employment has surged in the last decade and will continue.

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“To Boost the Economy, Help the Self-Employed”

(Richard Greenwald, Business Week, Aug. 8-14, 2011) Over 40 million self-employed in the U.S.—31 percent of the

labor force.

By 2019 the self-employed will account for 40 percent of all American workers, according to the Bureau of Labor Statistics.

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Nonfarm proprietorships (NFPs) as Self-employment

The BEA classifies total full- and part-time employment into two major categories: Wage and salary jobs and

Number of proprietors (work for themselves and often time employ others in their businesses) Further classified as farm proprietors and NFPs

Proprietors Sole proprietorships and the number of individual business

partners not assumed to be limited partners

Some of the individuals who are proprietors may also be employed by someone else.

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NFP as measure of self-employment

Good proxy for self-employment at county-level.

BEA itself calls proprietors self-employers.

Proprietors may not be equated with entrepreneurs per se.

But they arguably have more in common with entrepreneurs than with wage and salary workers.

Proprietors create new jobs for themselves, and often for others and are small businesses.

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0

20

40

60

80

100

120

140

160

180

200

Mil

lio

ns Source: Northeast Center for Rural Development, 2011

Self-Employment and Wage-and-Salary Employment, 1969-2009

Wage-and-salary

employment

Self-employment

Farm proprietorships

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Ratio of Self-Employment to Wage and Salary Employment, 1969-2009

0.1

0.15

0.2

0.25

0.3

1960 1970 1980 1990 2000 2010 2020

Source: Northeast Center for Rural Development, 2011

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Ratio of Self-Employment to Wage-and-Salary Employment, 1969-2009

0.1

0.15

0.2

0.25

0.3

1960 1970 1980 1990 2000 2010 2020

1.4% avg.growth

3.5% avg.growthSource: Northeast Center for Rural Development, 2011

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Self-employment as a percent of total employment, 2008

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Self-employment by rural urban continuum codes (RUCC)

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Self-employment and local economic performance

Are regions or local communities better off with higher numbers or shares of self-employers? Does per capita income in localities grow faster when they

have a higher percentage of self-employers?

Does total employment increase when more people in the locality are self-employers?

Are localities with higher percentage of self-employers able to reduce poverty rates?

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The framework for analysis

We use a conventional economic growth model and data for three time-periods (1970s, 1980s, 1990s)

Our specific measures of county economic performance: income growth, employment growth, and change in poverty

We estimate separate models for metro and nonmetro counties using USDA classification Metro counties: RUCC 0-3 Nonmetro counties: RUCC 4-9

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Impacts of Self-Employment

Income growth: self-employment is positive and significant for both metro and nonmetro counties.

Employment growth: self-employment is positive and significant for both metro and nonmetro counties.

Change in poverty: self-employment is negative and significant for nonmetro counties but not significant for metro counties.

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Conclusion

Exploiting a very rich county level data set, our study finds a statistically significant relationship between self-employment and county economic performance measures.

Results provide empirical support for the pro-small business prescription to accelerate local economic and employment growth and reduce county-wide poverty.

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Opportunities for policy and practice: self-employment

More technical assistance and credit access to increase productivity.

Access to general business services.

Provide programs that stimulate the entrepreneurial culture of a community.

Help with other issues such as healthcare, taxation, and data collection.

Research needs to be done on what self-employed need in order to be successful.

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Growth in NFPs has not been matched by increase in income for those proprietors

Wage-and-SalaryEmploymentRatio, Self to

Wage-and-SalaryEarnings

Self Employment

RatioEarnings ($/year)

Source: Northeast Regional Center for Rural Development, 2011

“Catch-up”

Post-2001Decline

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Self-Employment Assistance - DOL

A voluntary program for States.

Designed to encourage unemployed to create their own jobs by starting their own small businesses.

States can pay a self-employed allowance, instead of regular unemployment insurance benefits.

Participants receive weekly allowances while they are getting their businesses off the ground.

To date, DE, ME, MD, NJ, NY, OR and PA have such programs.

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“Self-Employment Should Play a Bigger Role in Jobs Programs”

Oregon’s successes (the Editors of Businessweek, August 23, 2011): People opting for self-employment get business pointers as well as

detailed reviews of their startup plans. Examiners look for clear ideas about pricing, supplies, customers and

competition.

Successful entrepreneurs have on average created 2.63 additional jobs.

California, Texas and Florida -- are home to 30 percent of America’s unemployed – but don’t currently offer entrepreneurial assistance to the jobless. Setting up such programs would be a big help.

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What is the main barrier to self employment in your community?

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5%

9%

0%

14%

64%

9%1. Lack of entrepreneurial spirit

2. Capital access

3. Access to information/technical assistance

4. Local/state economic development policies

5. No barriers

6. Other

Questions to Ponder

What at the common characteristics of the chronically unemployed in your community?

What remedies (policy, programmatic, services, etc.) are needed to improve workforce development in Georgia?

Do technical and vocational colleges in your community possess the infrastructure, human capital, and financial resources to meet current and anticipated demand?

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Thank you!

Questions,

Comments?

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Self-employment as a Jobless Recovery Strategy for Local Communities What area do you cover?What type of area do you work in?Are you a…DisclaimerOutline Graphing the Recession’s ImpactSlide Number 8Number of unemployed persons per job openingThe scope of the jobs deficitCivilians Unemployed for 27 Weeks and Over Employment conditions �in your community have…in the last six monthEmployment conditions �in your community will…in the next six monthWhat is the main barrier to employment �in your community?For some unemployed, self-employment may be their best hope “To Boost the Economy, Help the Self-Employed”Nonfarm proprietorships (NFPs) as Self-employmentNFP as measure of self-employmentSelf-Employment and Wage-and-Salary Employment, 1969-2009Ratio of Self-Employment to �Wage and Salary Employment, 1969-2009Ratio of Self-Employment to �Wage-and-Salary Employment, 1969-2009Slide Number 22Self-employment by rural urban continuum codes (RUCC)Self-employment and local economic performanceThe framework for analysisImpacts of Self-EmploymentConclusionOpportunities for policy and practice: self-employmentGrowth in NFPs has not been matched by increase in income for those proprietors Self-Employment Assistance - DOL“Self-Employment Should Play a Bigger Role in Jobs Programs”What is the main barrier to self employment �in your community?Questions to PonderThank you!