by Cameron Macht
During a recession, when job opportunities are not available at larger employers, many workers decide to start their own businesses. In doing so, they join a surprisingly large portion of the economy that often flies under the radar.
What the Statistics Say
According to the U.S. Census Bureau’s Nonemployer Statistics program, there were more than 21 million self-employed businesses in the United States in 2008, generating almost $1 trillion in sales. In Minnesota, there were 376,397, reporting sales of more than $15 billion—about seven percent of the state’s Gross Domestic Product.
Between 2002 and 2008, Minnesota gained 43,125 new self-employed businesses, a 12.9 percent increase. This made self-employment a larger portion of the employment picture in the state, increasing from 11.4 percent of jobs in 2002 to 12.3 percent in 2008. Though they account for a relatively small share of jobs, self-employed businesses make up more than 69 percent of all Minnesota firms.
Interestingly, the biggest jump in self-employment occurred from 2002 to 2003, while Minnesota’s economy was recovering from the recession and employers were still cutting jobs. This suggests that workers are more willing—and able—to strike out on their own when job growth at traditional employers is slower.
Strong growth continued through 2006. After averaging more than 13,000 new self-employed businesses each year from 2002 to 2005, the state gained just 3,445 from 2005 to 2006. This coincided with the fact that jobs were easier to find at traditional employers. As the economy and job growth slowed in 2007, self-employment jumped again, adding over 10,000 more establishments from 2006. (See Figure 1).
Still, Minnesota lost about 10,000 self-employed businesses in the first year of the Great Recession—essentially wiping out the previous year's growth. Detailed data is not available for 2009 or 2010 yet, but it will be interesting to see if self-employment again increased as employers cut jobs.
Striking Out on your Own
If you’re frustrated with the job market and thinking of setting up your own shop, there are resources available to help you make a successful transition from employee to boss. The Minnesota Department of Employment and Economic Development (DEED) has an entire section of their website dedicated to helping people start businesses as well as a comprehensive Guide to Starting a Business in Minnesota. DEED also has experts that can provide additional help, including:
- Small Business Assistance Office
- Small Business Development Centers
- Science and Technology Authority
- Business Development Specialists
- Workforce Development Specialists
- Labor Market Analysts
- Positively Minnesota Marketing Partnership
These services are available across the state, and most are available to self-employed businesses at no cost.
Don’t forget to weigh the pros and cons of self-employment given your unique situation. There is no one-size-fits-all approach to starting your own business.
Cameron Macht is a labor market analyst for the Central and Southwest Minnesota region at the Minnesota Department of Employment and Economic Development.