Bengte Evenson and Dr. Mark. H. Showalter, Economics
The implications of current trends in self-employment are not well understood because the relevant literature is simply not well developed. A good portion of the current literature on self-employment can be found in the Small Business Journal, a recently established publication with a sociological focus. Economic publications on self-employment are much more scarce and tend to be mixtures of observation and preliminary analyzation. A major hindrance to the development of this literature is that there are few standards to guide it. Even the basic definition of self-employment is still debated. For example, the Bureau of Labor Statistics (BLS) does not include owners of incorporated businesses as self-employed; the Current Population Survey (CPS), which is widely used in empirical work, defines both incorporated and unincorporated business owners as self-employed. It seems to be rather subjective as to whether, for example, partners in partnerships classify themselves as self-employed. Although autonomy is usually a factor used to define self-employment, it is up to the researcher to determine if one is “autonomous enough.” This lack of standards leads to data interpretation problems and widely variant results in the literature.
Perhaps the best explanation of the recent interest in self-employment in the empirical literature is that self-employment trends have taken a surprising turn. Historically, self-employment 1 rates worldwide have followed a downward trend. For example, declining self-employment rates among white males have been documented since 1910 2. However, beginning in 1970 this trend has reversed itself in most industrialized countries. Interestingly enough, the relative numbers of self-employed individuals have been steadily increasing. Due to the lack of a coherent literature, the full implications of this reversal in the self-employment trend have yet to be discovered. Yet there is general agreement that there are profound economic and political consequences due to changes in both the societal incentive structure (such as government policy) and the attitudes and characteristics of the “average American.”
Some have argued that choosing self-employment changes one’s returns to education and lifetime age-earnings profile. Self-employed individuals also have an increased ability to avoid discrimination (such as “glass-ceilings” for female executives) and to manipulate their work schedule (to respond to government policy such as changes in the tax codes or to accommodate personal and family concerns). Increased flexibility is often cited as the major advantage of self-employment. This ability to respond, especially to government policy, has led to the self-employed having a relatively large political influence. They are treated specially in the tax codes and by social insurance programs, among others. Obviously self-employed individuals have an immense influence on the political and economic structure of American society. It is therefore important to obtain a comprehensive picture of this rapidly increasing sector of society.
Unfortunately, our current picture is gender biased. Most of the literature focuses on men. However, the proportion of women currently self-employed in the United States has also increased dramatically since 1970. Even the popular press has observed and commented on the unusually high proportion of women who are joining the ranks of the self-employed. For 66 example, the November 11 issue of the Wall Street Journal featured a front page article entitled “More Women Quit Lucrative Jobs to Start Their Own Businesses.” The article states that more than 1/3 of America’s entrepreneurial businesses are now owned by women 3.
The only author that has done research specifically focused on self-employed females in the United States is Theresa J. Devine, assistant professor of economics at Pennsylvania State University. In “Characteristics of Self-Employed Women in the United States” (Monthly Labor Review, March 1994) Devine uses CPS data restricted to individual civilians 16 years of age or older 4. An individual must work at least one week to be defined as employed and self-employed in the nonagricultural sector in their longest-held job to be defined as self-employed. The individual may be self-employed in an incorporated or unincorporated business, but not in a family business as an non-wage employee. Devine uses data from the CPS March Income Supplement, in which individuals report on the entire previous year. She does this in an effort to capture all self-employment income, which she argues is more variable than wage income and thus more subject to time lags, for the previous year.
Her work on self-employed individuals was replicated using the 5% Public Use Micro Sample (PUMS) data, another nationally representative data set which derives from the United States Census. Although PUMS has larger sample sizes than CPS, it is not as detailed in its questions. Specifically for this comparison, PUMS does not collect the individual’s health care data. PUMS is similar to CPS in that it collects annual data on the previous year. The PUMS replication is amazingly close to the original work done with CPS.
This research is both observational and preliminary. However, it is an important corroboration of past literature that should strengthen the credibility of the results and reemphasize the importance of research in women’s self-employment in the United States.
1. Self-employment in the context of this paper will always refer to self-employment in nonagricultural sectors. This is a common restriction in the self-employment literature.
2. Meyer and Fairlie, 1996.
3. Based on Census Bureau statistics.
4. Devine actually subtracts one year off age to make it corresponds with the income variable.
References
- Devine, Theresa J. (1994), “Characteristics of Self-Employed Women in the United States,” Monthly Labor Review, March, pgs. 20-34.
- Devine, Theresa J. (1994), “Changes in Wage-and-Salary Returns to Skill and the Recent Rise in Female Self-Employment,” American Economic Review, 84(2), pgs. 108-13.
- Fairlie, Robert W. and Bruce D. Meyer (1996), “Trends in Self-Employment Among White and Black Men: 1910-1990,” Working Paper. 67