News Column

More Turn to Self-employment in Jobless Recovery

July 29, 2013
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Many of the lost jobs haven't returned, and many of the shuttered offices are still closed, but in the years leading up to the recession through the first part of the sluggish recovery one type of area business has seen a steady rise:

The kind with no employees.

Throughout the past decade, the number of businesses in the St. Louis area that the U.S. Census Bureau labels as nonemployers -- companies with no employees and receipts of more than $1,000 -- has consistently grown, and in recent years, the city of St. Louis has experienced an especially sharp jump.

Between 2006 and 2011 -- the most recent year data were available -- the number of nonemployers in the city rose by 36 percent, to 21,719 from 15,963, far above the gradual increases seen across Missouri and the rest of the nation.

Across the 15-county St. Louis area, there was a 9 percent increase in nonemployers during that period, to 180,434.

While the data show more people are working for themselves, economists say that nonemployer statistics are not a good barometer for the type of entrepreneurship that has a significant economic impact. The figures are based on tax filings and business mailing addresses, and capture people who start their own companies, freelance, consult, or earn various forms of side income. The statistics exclude cash businesses that don't report income to the IRS.

More nonemployer activity could reflect a lack of job opportunities, which pushes more people to go at it alone.

Jackie Lomax of St. Louis decided to start her own business, Cookie Lady on Wheels, after her contract as a teacher for the Special School District wasn't renewed last year. She was frustrated with schools and was unhappy with the work, and said she felt relieved to leave the education field after 14 years, even if it meant going without a steady paycheck.

In May, Lomax, 47, was admitted to a business incubator, St. Louis Enterprise Centers-Midtown, where she has access to commercial kitchen space. She used savings and a microloan from a nonprofit group, Justine Petersen, to get started, and now delivers to homes and offices, sells through a handful of gas stations and runs a weekend stand at the Soulard Farmers Market.

"It's a whole different experience to know that you have all the weight on you," she said. "It's a leap of faith."

She's optimistic, and she's happier, but things aren't easy. She has no health insurance, and although it's early, she isn't making much more than what she puts into the business. For financial support, she's been using savings and receiving help from family members.

"My story is just another example of what's going on in society," she said.

Bouncing back

St. Louis has gained recognition for a growing volume of entrepreneurial activity. Some small business advocates and consultants point out that local entrepreneurs now have more resources available -- from incubators to co-working spaces to technology -- which could be spurring more people to decide that now is the time to take a risk and start a business.

"There's a lot going on in St. Louis, both on the high-tech side and the low-tech side," said Dane Stangler, a policy researcher at the Kauffman Foundation.

And while employment has been slow to improve in the St. Louis area, Stangler said the creation of new businesses has bounced back earlier and stronger than in other parts of the country.

After losing his job as a creative director at a marketing agency during the downturn, Dan Reus of St. Louis struggled on his own as a freelance creative strategist before taking a side project and turning it into a full-time business. "What I discovered was that there are just a ton of people out there that said they're a creative strategist," he said. "I disappeared into the woodwork."

Last year, he began devoting his efforts solely to Openly Disruptive, which he started in 2009. The company organizes events, workshops and webcasts and provides consulting related to innovation, technology and culture, and makes money through charging for memberships and event admission fees. A year later, Reus reached a point most nonemployers don't get to: He added a partner, hired two contract employees and an intern, and hopes to keep hiring as business grows.

But most new nonemployers are unlikely to grow to a point where they add workers, and many people who go solo probably earn less than they did when they were employed elsewhere, which means the city's nonemployer growth might be more of a concerning sign than a point of pride.

"It's certainly one possibility that self-employment of that sort goes up during bad times," said Lindenwood University economist Howard Wall, "and the city has had worse times than other areas."

In some instances, he said, there can be "a fine line between self-employed without employees and unemployed."

The city, despite the sharp rise in nonemployers, has only a slightly smaller share of them on a per-capita basis than St. Louis County. But the $47,775 average St. Louis County nonemployer made in 2011 was more than $10,000 above the average earned by those in the city.

"In many ways, nonemployer businesses are a substitute for employer businesses," said Case Western University professor Scott Shane, "and they're a lesser substitute."

Nationally, they account for 75 percent of all businesses, but their economic impact is far less significant: They generate only 4 percent of business receipts, and only about 15 percent of them will grow to a point where they will become employers, Shane said.

Across the 15-county St. Louis area, the average nonemployer generated less than $41,000 in revenue in 2011, which Shane said indicates some of them are likely selling items online or doing whatever part-time work they can find as they look for a full-time job.

And as the number of nonemployers has grown, the overall number of establishments with employees -- which have a greater effect on the economy -- has been flat during the past few years, and is still below pre-recession levels in both the city and across the area.


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Source: Copyright St. Louis Post-Dispatch (MO) 2013

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