Microenterprise as a Recovery Strategy for Local Communities

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TODD GREENEFEDERAL RESERVE BANK OF ATLANTA

MAY 1, 2012

Microenterprise as a Recovery Strategy for Local

Communities

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Disclaimer

The views expressed in this presentation are the views of the

speaker and do not necessarily reflect the views or policies of the Federal

Reserve Bank of Atlanta or the Federal Reserve System.

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Self-employment data

The BEA classifies total full- and part-time employment into two major categories: Wage and salary jobs and Number of proprietors (work for themselves and often

time employ others in their businesses) Further classified as farm proprietors and NFPs

Proprietors Sole proprietorships and the number of individual

business partners not assumed to be limited partnersSome of the individuals who are proprietors

may also be employed by someone else

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For some long-term unemployed, self-employment may be a viable alternative

Over time, more people in the U.S. have turned to self-employment as a source of income. The long-term trend has revealed a remarkable

labor market phenomenon in the U.S. Self-employment has surged in the last decade

and will continue.

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0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

160000000

180000000

200000000Source: Northeast Center for Rural Development, 2011

Self-Employment and Wage-and-Salary Employment, 1969-2009

Wage-and-salary

employment

Self- employment

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Share of Self-Employment as a Percent of Wage-and-Salary Employment, 1969-2009

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 201510%

15%

20%

25%

30%

1.4% avg. growth

3.5% avg. growthSource: Northeast Center for Rural Develop-

ment, 2011

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Self-employment as a Percent of Total Employment, 2008

8Growth in Self-employment has not been matched by increase in income for those proprietors

This raises the question of whether self-employment has any local economic benefits for the economy, in terms of stimulating incomes, wage and salary employment, or lowering poverty.

Source: Bureau of Economic Analysis, 2011

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

05000

100001500020000250003000035000400004500050000

Average wage and salary disbursements Average nonfarm proprietors' income

Earn

ings

($/

year

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Self-employment and Local Economic Performance

Are regions or local communities better off with higher numbers or shares of self-employers? Does per capita income in localities grow faster when

they have a higher percentage of self-employers? Does total employment increase when more people in

the locality are self-employers? Are localities with higher percentage of self-employers

able to reduce poverty rates?

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Recent Research on Effects of Entrepreneurship

Study Measure of entrepreneurship

Geography Measure of economic performance

Deller and McConnon (2009)

Establishments that employs 1-4 employees (County Business Patterns data from the Census Bureau)

US States Employment and income growth

Goetz et al (2011)

the Kauffman Entrepreneurship Index (KEI)

US States Employment growth

Rupasingha and Goetz (2011)

The share of nonfarm proprietorships (Bureau of Economic Analysis data)

US Counties

Employment and income growth and change in poverty

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Research Findings

Measures of entrepreneurship has a strong and positive impact on state income and employment growth.

Self-employment has a strong positive impact on income and employment growth in both metro and nonmetro counties.

Self-employment has a strong negative impact on poverty in nonmetro counties but no statistically significant effect in metro counties.

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Implications of Research Findings

Self-employment is not a temporary phenomenon observed until the economy recovers. It is growing and likely here to stay.

Policymakers should consider increased attention to this new workforce reality.

Policy and educational programs directed at improving the productivity and earnings of the self-employed may possibly impact local economic growth and opportunity.

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Opportunities for Policy and Practice

More technical assistance and credit access to increase productivity.

Access to general business services.Help with other issues such as healthcare,

taxation, and data collection.Provide programs that stimulate the

entrepreneurial culture of a community. Research needs to be done on what self-

employed need in order to be successful.