The recession that started with the collapse of the housing market ended five years ago, yet there’s a persistent sense that if we’re out of it, it’s only through a long and ugly slog. While the headline unemployment rate is indeed falling, we keep finding that other indicators of the job market don’t look great. The New York Times‘ David Leonhardt draws attention to the decline in the number of people answering surveys, a problem because the unemployed may be particularly unwilling to tell economists that they don’t have a job.
So here’s another uncomfortable indicator to add to the mix: The number of people who identify as “self-employed.” If small business is indeed the engine of the economy, as politicians like to point out, then self-employment is the engine of small business creation. A new company starts with one person quitting a job to start something new.
Since the recession, the number of self-employed has fallen. Below you can see a chart of the unincorporated self-employed. It’s down from a peak of 10.9 million in 2005 to 9.1 million now (the drop in incorporated self-employed workers is similar). At first, you may suspect self-employment might climb in recessions, as some folks move from jobs to unsteady — and sometimes marginal — freelance work. That, however, isn’t true: The self-employment number has historically behaved like other indicators of employment, rising in times of prosperity and falling in recessions.
After other recessions, the number of self-employed bounced back, increasing dramatically in the early 1990s and the early 2000s. Not this time. The self-employment number kept falling into late 2011, and has stayed mainly flat since then, dipping in recent months.
What’s the explanation here? There’s nothing in the numbers that will let us know for sure. But there are a couple of obvious possibilities. It could be a lack of credit to start businesses. It could be a lack of clients for small businesses. Or it could be a flight to safety in which folks prefer not to take the risk of going out on their own. None of those are promising for the long-term health of the economy.