America Ranks Low in Self-Employment

A recent study by the Organization for Economics Cooperation and Development (OECD) found that the US ranked 35th out of 36 countries studied for self-employment rates.

Why isn't self-employment growing in the U.S.?

It could be a combination of a poor education system and 99 weeks of unemployment benefits.

Would love a link to that statistic, because I find it unbelievable.

Common Sense Capitalism said:

A recent study by the Organization for Economics Cooperation and Development (OECD) found that the US ranked 35th out of 36 countries studied for self-employment rates.

Why isn't self-employment growing in the U.S.?

It could be a combination of a poor education system and 99 weeks of unemployment benefits.

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Given the countries at the top of the self employement list I think this paragraph says it all

Why are there such variations in self-employment rates? “It really depends on the opportunity cost,” says Shane. Consider this example: let’s say the medium annual income in the U.S. is $30,000 and your business idea will bring in $2,000 per year, at least in the beginning. Unless you have a comfortable nest egg to dip in while your business is in start-up mode, you will probably choose to work for someone else for $30,000 rathan than starve with $2,000, right? “However, if you are in a country like Peru where the per-capita income is probably a couple of thousand dollars and the idea you have will bring in a couple of thousand, then that idea will be easier to generate,” Shane says.

Another factor is choice. In many of the countries with high entrepreneurship rates, there are typically not enough jobs or anyone hiring. Unemployed people there typically have no choice but to start their own business.

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Most of the self employed will be doing simple service sector type jobs that require little capital, and in general low rewards, from the roadside vendor of fruits and vegatables to the person creating his/her own lawn maintanence company.

Tammer hit on my initial assumption, which was opportunity cost disparity. Americans like to gamble, but not with their lives and livelihoods.

Now for the dramatics: do social safety nets encourage risk taking endeavors?

Every road and every school building can be seen as part of social insurance if it is financed with taxes that deviate from the benefit taxation criterion by making the rich net contributors and the poor net receivers of economic resources. In modern societies, the government budget is by far the largest risk absorption device available, generating a protection similar to, but larger than, the protection offered by private insurance companies

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While the insurance against various kinds of risks is the main allocative function of the welfare state, it would be too narrow to see this function in the context of given risks only. Typically, insurance stimulates risk taking and induces various kinds of moral hazard effects. Social insurance can hardly be an exception.

Up to a certain extent, risk taking is the beneficial part of the behavior changes brought about by redistributive taxation. It has many dimensions. The most important one is probably a person's educational or occupational choice. A young person faces a large variety of options differing with regard to the expected lifetime income and the riskiness of this income. In many countries, one end of the spectrum is defined by tenured employment in the government sector with low pay, few opportunities for advancement, and nearly perfect security. The other end of the spectrum consists of entrepreneurial activities that involve both a large risk of failure and the chance of winning a fortune. Between these extremes there is a multitude of other options densely covering the whole range.

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The rest of the article can be found here.

Lord Tammerlain said:

Given the countries at the top of the self employement list I think this paragraph says it all


Most of the self employed will be doing simple service sector type jobs that require little capital, and in general low rewards, from the roadside vendor of fruits and vegatables to the person creating his/her own lawn maintanence company.

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I agree. Most Americans want what they percieve as a secure job. Being self employed requires a very high tolerance of risk.

And there also may be some differences between the way that people in different countries define "self employed". By my definition, if you own a company that is capable of operating without the owner being involved, you are not self employed. If you own a company which can not exist without owner involvement you are self employed. Personally, although the company I own has employees, I still think that I am self employed, as without my constant day to day involvement my company would die rather quickly. I don't currently have enough employees or employees who are well trained enough to run my shop without me being there. Technically, I am probably not self employed though because I do draw a regular paycheck from a corporation.

It is entirely possible that we may have a larger percent of business owners, but a smaller percent of them who would define themselves as "self employed". It can be quite difficult to get a mortgage or car loan if you are self employed - banks don't consider the self employed to be stable. Personally, when I apply for a loan, I NEVER admit to being self employed.

The ironic thing is that people who own the company that they work for tend to be much more economically stable. In my case, due to this recession, the company I work for has reduced it's staff by 75% or so, but my job is quite secure because I am the one making the staffing decisions, and thus naturally I will be the last to loose my job.

Goldenboy219 said:

Now for the dramatics: do social safety nets encourage risk taking endeavors?

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If you ignore they contentment and do-nothing attitude that they encourage.

The main reason for low self-employment is because of the complicated tax system. Why would you want to open your own business when for about 3 months (or more) of your year you have to dedicate a ton of time to filling out your tax forms? Does that sound like something that entrepreneurs would enjoy doing? The US has one of the most complicated tax systems in the world, it's no surprise that this would discourage the opening of new businesses.

phattonez said:

If you ignore they contentment and do-nothing attitude that they encourage.

The main reason for low self-employment is because of the complicated tax system. Why would you want to open your own business when for about 3 months (or more) of your year you have to dedicate a ton of time to filling out your tax forms? Does that sound like something that entrepreneurs would enjoy doing? The US has one of the most complicated tax systems in the world, it's no surprise that this would discourage the opening of new businesses.

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Because you adhere to a school of thought that cannot explain or even theorize firm creation/expansion, i do not expect you to agree; institutional costs (be whatever they may) have a direct long run connection to firm creation. Reason be, firms can exploit tacit knowledge to create what mainstream economists refer to as "economies of scale". If you eliminate institutional costs, the need for firms goes to zero.

Common Sense Capitalism said:

A recent study by the Organization for Economics Cooperation and Development (OECD) found that the US ranked 35th out of 36 countries studied for self-employment rates.

Why isn't self-employment growing in the U.S.?

It could be a combination of a poor education system and 99 weeks of unemployment benefits.

Click to expand...

One of the biggest reasons is our health insurance debacle. The lack of affordable health insurance has caused many an entrepreneur to blanch when he investigates the start-up costs of his own business. As for the 99 weeks unemployment being an issue, actually that would be (and is) a blessing because that paycheck gives them something to fall back on as they start up. Starting one's own business isn't easy. Being self-employed isn't easy. I know. I've done it all my life.

I have two separate friends who just 'went self-employed' after being laid off due to the fallen economy. They used their unemployment and their COBRA in order to make it a feasible decision. Without both of these perks, they'd have been unable to do so. One has hired two guys. The other has hired one. Both are going to make it.

If you haven't paid for your own health insurance, well, you just have noooooo idea what it costs. In my opinion, that's the major reason we are 2nd to last in this study.

phattonez said:

The main reason for low self-employment is because of the complicated tax system. Why would you want to open your own business when for about 3 months (or more) of your year you have to dedicate a ton of time to filling out your tax forms? Does that sound like something that entrepreneurs would enjoy doing? The US has one of the most complicated tax systems in the world, it's no surprise that this would discourage the opening of new businesses.

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Totally disagree. The last thing an entrepreneur thinks of is our complicated tax system. And, in fact, our complicated tax system actually benefits those who are self-employed -- but most people don't find that out 'til they're well on their way.

Common Sense Capitalism said:

A recent study by the Organization for Economics Cooperation and Development (OECD) found that the US ranked 35th out of 36 countries studied for self-employment rates.

Why isn't self-employment growing in the U.S.?

It could be a combination of a poor education system and 99 weeks of unemployment benefits.

Click to expand...

Link to the study's findings?

What is classified as "self-employed" according to this research? What isn't? In the US are certain careers not considered self-employment while in other areas they are? Vise versa?

MaggieD said:

Totally disagree. The last thing an entrepreneur thinks of is our complicated tax system. And, in fact, our complicated tax system actually benefits those who are self-employed -- but most people don't find that out 'til they're well on their way.

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How in the world does a complicated tax system benefit the self-employed?

phattonez said:

How in the world does a complicated tax system benefit the self-employed?

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Institutional costs! New institutional economics - Wikipedia, the free encyclopedia

phattonez said:

How in the world does a complicated tax system benefit the self-employed?

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Well - in this pdf report the OECD discusses overall Jobs - in the "Entrepreneur" section it states that:

Entrepreneurship has been particularly restrained in Europe which has created, net, few private
sector jobs over the last 20 years.

Dynamic entrepreneurship thrives when there is a highly trained and flexible labour force, good
physical infrastructure, modern telecommunications, a comprehensive network of business services,
and easy access to universities and centres of technological expertise and research. Large firms can
become more dynamic with small divisions or units – or by creating networks of small firms – that
enhance flexibility and innovation capacity.

Capital markets need to be able to provide the various forms of financing such as seed capital, venture
and equity capital, and debt finance required for the creation and development of dynamic small
businesses. Financial institutions with specialised expertise in specific sectors are the best able to
assess risk in their sector of expertise, and are best placed to provide financing to promising projects.

(following is from the section about Deincentives to Hiring)
The private sector would create more jobs if there were fewer barriers to hiring. In many cases, what
is needed is to mitigate the unintended side-effects of many policies that were designed to achieve
equity objectives. In some cases, this may mean a more fundamental, radical redesign of policies,
together with considerable changes in attitudes and institutional practices, especially in the fields of
taxation, social policy and collective bargaining.

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So - is self-employment *good* if it's self-serving and hires few others to assist and permit the business to grow?

Perhaps what really is happening is that in the US a self-employment turns into an actual business or corporation rather than staying small and continually self-employed . . . .begging the question: Why are so many people favoring self-employment in other countries as opposed to expanding and growing past the self-employment sector?

Goldenboy219 said:

Because you adhere to a school of thought that cannot explain or even theorize firm creation/expansion, i do not expect you to agree; institutional costs (be whatever they may) have a direct long run connection to firm creation. Reason be, firms can exploit tacit knowledge to create what mainstream economists refer to as "economies of scale". If you eliminate institutional costs, the need for firms goes to zero.

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The Capitalist and the Entrepreneur: Essays on Organizations and Markets - Peter G. Klein - Mises Institute

11 matches for firm - Mises Audio/Video

Kind of a big mistake on your part it seems.

Goldenboy219 said:

Institutional costs! New institutional economics - Wikipedia, the free encyclopedia

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How does this have anything to do with my contention that complex taxes disincentivize the opening up of new businesses? I don't feel like reading the Wikipedia article if I have to go searching for it, just tell me.

And how many were published by major journals? :lamo

There is no congruent attempt to understand the firm, and therefore your adornment for mises.org falls on deaf ears.

The difference between you and i; i have studied both sides of the spectrum extensively.

Goldenboy219 said:

And how many were published by major journals? :lamo

There is no congruent attempt to understand the firm, and therefore your adornment for mises.org falls on deaf ears.

The difference between you and i; i have studied both sides of the spectrum extensively.

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Your lack of a real response to the evidence that I've shown you is very telling. Just a cop-out, no matter how much you try to put down the argument, it's not a real response.

phattonez said:

Your lack of a real response to the evidence that I've shown you is very telling. Just a cop-out, no matter how much you try to put down the argument, it's not a real response.

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The sad part is, you have not a clue where my comment leads. Because firm planning replaces market process, any Austrian theory of the firm will come off hypocritical because the idea of a firm revolves around central planning (from within the institution). Which is why there have been no real attempts by austrians to embark on such an endeavor. Hence, you cannot understand firm creation or existence within your ideological frame work. Hence you have come to a gun fight with a knife.

Here is the original link where I saw the study mentioned:

The Sobering Reality of Entrepreneurship in the U.S. | MintLife Blog | Personal Finance News & Advice

phattonez said:

How in the world does a complicated tax system benefit the self-employed?

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The tax system definitely benefits a self-employed person. So many things can get written off above the line that can't otherwise be done. Need a car in your business? You can lease one and write off the payment. Write off car repairs and gasoline, insurance. You can deduct your health insurance from dollar one. You can take advantage of SEP's to shelter money. Eating out? That can pretty easily be called 'advertising/promotion expense' in many instances. Oh, charitable contributions -- again, off the top. If your business starts making REAL money, you can shelter an awful of it through a Defined Benefit Pension Plan. That's just a few I can think of right now.

I've been self-employed my entire career. I pay around $600 a year to have my taxes done. Withholding for employees is a snap once you're on to it. And most people don't start right off with employees, so they sneak in to that complication a little at a time.

Decide on a business you want to open. Open up a separate checking account, and you can be open for business tomorrow.

Common Sense Capitalism said:

A recent study by the Organization for Economics Cooperation and Development (OECD) found that the US ranked 35th out of 36 countries studied for self-employment rates.

Why isn't self-employment growing in the U.S.?

It could be a combination of a poor education system and 99 weeks of unemployment benefits.

Click to expand...

AND THE FA T ATHAT WE'VE BEEN RAISED TO BE ABUCNAHA NAMB Y PAMBY ******S BY OUR FRIGGIN STUPID DAMNBABY BOOMERS. SCR3W THEYM!!!! stupdi damerican citiazeaenms thinknowdays that the world be handed on a silver friggin p late; you gotta go out and KILL for that studff man, you gotto aKILL if you want ot be no 1, fringggin, you gotta take it and own it and let no one tell yout hatat you are afriggin no 2, youunnnderstand!? make it your OWN! stupid pansyes,

lol 'ohno my paresnts were mean and i made some mistakares i gues i'll yojust hyave to sit here and bitch about it for the srest ofmy life....'

stupid tareds, you desrere the unemploytment thagt's theaded your way.

Questionable. First the link to the study doesn't open. Second, how do they define "self employed?"

Plenty of Americans engage in what constitutes self employment. Many of them don't report it. How would the study count them?

From your article, Common - None of these things = "being an Entrepreneur is a good idea"

More hours.
Less pay.

The odds are against you.

We tend to believe that working for ourselves will make us happy — and that is generally the main reason why entrepreneurs opt to work for themselves, writes Shane.

The typical entrepreneur, however, works more hours than a person who works for someone else. And contrary to popular belief, he or she isn’t happy about it. According to Shane, entrepreneurs often work more hours because they have to, not necessarily because they want to or because it makes them happier.

During this recession, we have witnessed a rise in entrepreneurship — but not necessarily in the numbers of successful entrepreneurs. “The number of people that are transitioning into self-employment has been higher in 2008 and 2009 than in 2007,” Shane says. “But at the same time, people who are working for themselves are finding it harder to find customers, sell products, finance their business and keep going. The number of people that have been exiting their business has gone way up.”

The U.S. Small Business Administration says that 50% of small businesses fail within five years — but look on the bright side: your business could be in the 50% that succeed.

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This is also key in understanding why less Americans choose to run their own business - there's no reason to:

The survey also found that each country has different economic and social conditions affecting the rate of entrepreneurial activity. In Saudi Arabia for example, few Saudis engage in starting their own business because of the country’s high reliance on income from oil extraction. On the other hand, countries in Latin America have a higher rate of business ownership because they have to be more self sufficient in order to make money.

Another factor is choice. In many of the countries with high entrepreneurship rates, there are typically not enough jobs or anyone hiring. Unemployed people there typically have no choice but to start their own business.

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so what these facts really tell us are that Americans prefer job-security, reasonable hours and a shared workload rather than taking everything on their shoulders and gambling their lives away.

Notice here:

new business ownership rate is much lower in the United States than that in countries like Guatemala, Greece and Argentina. The established business ownership rate is also lower in the United States than that in the Republic of Korea, Finland and Colombia.

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According to Nationmaster (Here) It's just easier to do such business in those countries, as well.

So - just because people in Korea and Colombia are self-employed at higher rates *doesn't* mean it's more profitable, a stable work environment or an overall ideal situation to be in.

All it really means is that it's easier to start your own business and that more people start their own businesses because there are no other jobs for them to work. They really have no choice.

Now - if they were to discuss and break down Entrepreneur ship within certain similarities such as: average income, average tax paid, average size of business, social environment, amount of regulation. . . etc - and *then* chart each country within these different categories *then* we'd get a more accurate picture.

But we're not Guatemala and Argentina - our economy is so different it's like comparing apples and oranges.

The U.S. Small Business Administration says that 50% of small businesses fail within five years — but look on the bright side: your business could be in the 50% that succeed.

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I have always wondered where the SBA gets its figures from and how they define the existance of a "small business". During the spring, in my business (we are a printing company) probably half of the people who walk into my shop are wanting to start either sometype of "landscaping" business (usually cutting grass) or pressure washing business. The first place a new business owner heads to is the local print shop to get business cards. They don't realize that it is hard to get customers, they don't have the sales/marketing skills to do it, they don't have the cash or equipment to do it, they don't have the right personallity to succeed in business, it gets friggen HOT in these parts by the end of June, and they don't want to put in the effort that it takes. But it sounded good to them when they concieved the idea and they were excited about it and wanted to get started in a hurry (that explains why they all want their business cards on the spot while they wait even though they haven't even thought up a business name yet).

I rarely get repeat business from them because within a month the vast majority of those people are out of business (although 95+% of my business in terms of dollars invoiced is from repeat customers).

I figure if someone purchases business cards, even if they havent filed any type of paperwork, they still qualify as a business for the few days that they pursue being a business. I would guess that the true 5 year failure rate far exceeds 90%.

A few weeks ago this guy comes in, he wants business cards, I could tell right off that he was a total looser. I get really tired of dealing with these people (business cards are NOT a major profit center for our shop) so I decided to a different tactic with him. I said something to the effect of: "You are not just going to need business cards, you are going to need yardsigns, and vehicle graphics, and invoices, and business checks, and mailers, and fliers, and customer satisfaction questionairs, and a perminant sign, and advertising specialty items, and screen printed or embroidered employee apparal, and employee time cards, and screen printed shirts to give to your customers and venders, and some vinyl lettering on your business vehicles, and a set of removable car magnets for your personal cars." I told him that I could work up a package deal for him on all of that stuff for around $5,000. The guy said he would have to come back later. Naturally I never saw him again.

Had a lady call a while back, she wanted to know how much it cost for 50 business cards. I told her that our minimum was 500. She explained that she did not want to purchase that many because she did not know if the business would be sucessful. I explained that if she didn't think that she could give out 500 business cards that her business would indeed not be sucessful and that she might as well save her money. Needless to say, she didn't place an order.