Daily Yonder reported recently that the number of rural businesses declined. The article is very good with detailed analysis. But I was struck by what it didn’t talk about: non-employer businesses. You know, self-employed people.
Self-employment is a critical part of the rural business picture, moreso than in urban areas. Stephan J. Goetz predicted that 25% of all rural workers would be self-employed in 2015.
Nonemployer businesses can be side businesses like craftspeople, musicians, or home-based businesses. They can also be retail stores, personal services, accountants, construction firms, independent truck drivers, even manufacturers.
Some of these businesses can be quite large. Small Biz Labs has been investigating the complicated subject of business counts. They said that more than 30,000 of these nonemployer businesses reported making more than $1 million in revenue. (See also Small Biz Labs analysis in The GAO Finds Twice as Many Self-Employed as the BLS.)
How can you have a $1 million business and no employees? Well, you can rely on independent contractors. Those won’t show up as employees in this data. So you’ll still fall into the nonemployer business category even though you’re operating a huge business. And since this includes common rural service industries, it’s possible that rural businesses are even more reliant on contractors than urban businesses. We can’t tell from this data.
So when you talk about the number of rural businesses but you don’t include the businesses that don’t have employees, you’re missing an important chunk of businesses.
When we look nationwide, the majority of all business establishments in the United States are nonemployers. The U.S. Census 2013 count shows 23.0 million businesses without paid employees in the U.S. This is an increase of 270,000, or 1.2% over 2012. Over the decade from 2003 to 2013 the number of nonemployer businesses increased by 4.4 million.
The U.S. Census definition includes businesses with no paid employees, but with at least $1,000 in receipts (or just $1 if in the construction industry) and subject to federal income taxes (not tax exempt or non-profit.) In spite of being so common, they report less than 4% of all business sales and receipts nationally.
Sadly, the U.S. Census doesn’t make it easy to break out rural versus urban nonemployers. So I can’t do much further analysis on rural nonemployers. Just don’t rush to judge rural business prospects based only on businesses with employees.
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News headlines and government policy seem to always be focused on that one big employment stat (or, I guess it’s really the unemployment rate).
Not sure if it was in the article you linked, or one that was linked to it, but they cite a 40% ‘contingent’ rate – contingent covering anything but your standard full-time W-2 job.
If 40% of us make a living doing something that doesn’t get counted in that one big stat, and that number isn’t likely to change, I wonder how long it will be before officials get out of the “if it isn’t big, it isn’t business” mindset.