that some of it results from an increase

fe

Self-employment in the United States, by selected characteristics,

over the entire period in the incorporation annuat averages, 1994
of: otherwise self-employed businesses. [Number in thousands]

The increased prominence of wage and wr Ratio to total nF
salary employment has resulted in large Category ——
part from the huge decline in agricultural Total Men | Women| Total Men | Women
employment, which, as has been seen, was
an important source of self-employment 7 102 69
and unpaid family work—on family sme | FSS 3 He 26
farms—throughout much of the Nation's 207 16 25 at 19
history. Over the past 50 years Orso, how- tan 1190 92} 109 53
ever, the family farm has all but died out, 1,532 927 10.5 12.3 os
being replaced by agribusiness, involving 10 bed i deo ae joo
large corporate organizations.

Agriculture 1,645 | 1,197 448 40.3 469 52.4
Characteristics of the self- Nonagrcultural industries .. 9,003 | 5,580 3,443 78 87 62
ning... 13 12 1 1 24 1.0
employed Construction 1,808 | 1,297 too | 201 206 | 152
Manufacturing 428 278 149 24 20 23
i 7 Transportation and public
Included in table 4 are self- employed utes 385 307 58 44 53
groupings for age, industry, occupation, 345 276 69 73 82 51
and full-time and part-time distributions, 1.861 788 775 74 a 72
by sex. Perhaps the most interesting as- 625 402 223 77 12.0 46
pect of the table is those columns which 4142 | 2,082 | 2,060 96 127 78
depict the percentages of self-employment
in each group relative to the employment 1,600 1,105 495 98 19 7A
total for the group. Here, we see, for ex- 1506 oe bed 38 108 gs
ample, that self-employment becomes in- 1,807 1,091 716 122 145 98
creasingly common as one gets older. 7 8 oft = 36 30 38
About a quarter of all employed persons _| Precision production, craft, and . ‘
7 is re- | repair 1,739 | 1,608 131 129 13.4 105
65 and older are self-employed. This Te- | operators, fab vicatore, and
sults both from an age effect—those indi- laborers .... 639 508 131 36 38 3.0
i i =. | Farming and related
viduals started their careers when self- ‘occupations 1606 | 1,200 386 “3 nz 85.1
employment was more common—and
from a tendency for some individuals to Full- or part-time status
4 | Full-time workers 7,680 | 5,531 | 2,149 77 94 52
enter self-employment as a second ca- | prime workers 2.968 | 1,226 | 1,742 127 16.1 4
reer” after retirement. In addition, what
was once a “side business” (and thus not * Public administration not included.
specifically counted, except through the Source: Current Population Survey.
measurement of dual jobholding) be-

comes the principal employment when

peopte retire from their wage and salary jobs. A final factor is
that younger workers are less likely to become sell f-employed,
because they may lack the skills, as well as the financial re-
sources, necessary to start their own businesses.

In terms of sheer numbers, the largest amount of self-em-
ployment occurs among persons in midcareer (35-44 years
of age) and those in the very diverse services industry. With
tegard to the industry dimension, as one might expect, siz-
able numbers of individuals in agriculture, construction, and
retail trade are self-employed. Occupationally, self-employ-
ment is even more diverse, with no single group standing
out, other than, of course, the occupational side of agricul-

ture—farming and related occupations. Typically, the self-
employed work full time, although they are more likely than
wage and salary workers to be on part-time schedules.

Business incorporation

Table 5 presents some limited data, readily available only
since 1989, on persons in the United States who claim to be
self-employed but, when asked, respond that their businesses
are incorporated. According to the table, the proportion of
total employment made up of the incorporated self-employed
was consistently about 3 percent over the 1989-93 period.

Monthly Labor Review January/February 1996 7



Measuring Self-Employment

The decline in unpaid family work has been particularly
marked in agriculture: whereas such work had once been
common on farms throughout the Nation, it is now virtually
nonexistent. The trend has four main causes: a decline in
agricultural employment in general; a decline in family size,
resulting in fewer children being available to be family work-
ers; a reclassification of “farmers’ wives” from family worker
to self-employed status; and increased employment of rural
women in nonfarm wage and salary jobs. Clearly, unpaid
family work has all but disappeared in the nonagricultural
sector as well.

In developing an “optimal” set of labor force questions
dealing with the 1994 changes, BLs researchers attempted to
improve the measurement of unpaid family work. The effort
began with the initial question on the existence of a business
in the household and branched off to determine whether any
members of the household in which a business existed
worked in that business, even without pay. (In the past, such
information needed to be inferred or required alert interview-
ers.) Importantly, however, a question was also added to
determine whether such family members “shared in the
profits of the business.” The net result of the endeavor
was a reduced incidence of unpaid family work in 1994, both
in agriculture and in nonagricultural industries, which
was something of a surprise to all who had worked on the
questionnaire.

The outcome was surprising because it had been felt that
the process of identifying households in which businesses
were operated by family members and then asking all house-
hold members who were not owners of the business whether
they performed any work for it—all possible with the advent
of computer-assisted technology—would result in the iden-
tification of more unpaid family workers. One possible rea-
son the opposite result was seen was the addition of the afore-
mentioned question to determine whether unpaid workers
shared in the profits of the businesses. This served to reclas-
sify people from unpaid family work to self-employment or,
more likely, to wage and salary work. But the upshot of all of
this is quite clear: for all intents and purposes, unpaid fam-
ily work is now virtually extinct in the United States.

Wage and salary workers

Wage and salary employment, the third grouping within the
class-of-worker classification, has become the overwhelm-
ingly dominant form of employment in the United States in
the postwar years. As can be seen in table 3, starting at under
80 percent of total employment in the late 1940’s, the pro-
portion of wage and salary workers expanded to about 91
percent by the late 1980's, where it has held for nearly a de-
cade. Most of this increase undoubtedly stems from the de-
clining importance of self-employment, but it is also clear

Table 3. and salary employment in the United States, annual averages, selected years, 1948-94

[Numbers in thousands]

Allindustries Nonagricuttural industries Agricuthre

Year Total ‘Wage and Total Wage and Total Wage and
employed | salary Percent salary Percent ed salary Percent

mploy way ‘employed | employ worker

58,343 45,868 788 50,714 44,222 872 7,629 1,846 218
58,918 46,985 79.7 51,758 45,355, 876 7,160 1,630 228
62,170 50,962 82.0 55,722 49,361 68.6 6,450 1,601 248
65,778 55,180 83.9 60,318 53,418 88.6 5,458 1,762 32.3
71,088 61,418 86.4 66,726 60,031 90.0 4,361 1,387 31.8
72,895 63,628 87.3 68,915 62,362 90.5 3,979 1,266 318
74,372 66,150 88.9 70,527 64,848 19 3,844 1,302 339
78,678 70,645 89.8 75,215 69,491 92.4 3,463 1,154 33.3
85,846 77,550 90.3 62,438 76,249 92.5 3,408 1,301 38.2
99,303 89,950 90.6 95,938 88,525 92.3 3,965 1,425 423
107,150 97,406 90.9 103,971 95,871 92.2 3,179 1,535 48.3
117,914 107,394 914 114,728 105,715 92.1 3,186 1,679 52.7
119,307 108,648 91.41 116,232 107,011 92.1 3,074 1,637 53.3
123,060 112,232 912 119,651 110,517 92.4 3,409 1,715 50.3

1 Prior to 1967, estimates of the number of wage and salary workers did not
include persons who operated their own incorporated businesses. These in-
dividuals were not identified as wage and salary workers until that year.

? Data for 1994 are not directly comparable with data for earlier years due

to a major redesign of the cps and the introduction of 1990 census-based popu-
lation controls, adjusted for the estimated undercount.

‘Source: Current Population Survey.

6 Monthly Labor Review January/February 1996



Measuring Self-Empioyment

In 1994, spurred by the new questionnaire, the figure jumped
a bit, to 3.3 percent. As with the incidence of total self-em-
ployment, the 1994 increase was particularly pronounced
among women. It appears that the attempt to specifically
identify businesses in al! households at the beginning of the
new questionnaire (as suggested by Polivka and Miller),®
coupled with a careful, logical set of questions about the na-
ture of employment, increased the reporting of all self-em-
ployment and may have had its greatest impact on identify-
ing businesses that are incorporated.

The 3.3-percent figure for 1994 is not necessarily a valid
indication of the extent of incorporated businesses in the
United States. Indeed, it is likely that many owners of incor-
porated businesses are well aware that they are employed by
their own firms and therefore do not respond in the survey
that they are self-employed in the first place. Having correctly
responded, then, that they are wage and salary workers, they
are not asked whether they own an incorporated business.

Although data could not easily be obtained on the number
and percentage of self-employed owners of incorporated busi-
hesses prior to 1988, limited statistics are available for March
of 1976, 1979, and 1982. These data suggest that incorpora-
tion has definitely been on the upswing in the United States,
with a progression from 1.5 million in 1976 to 2.1 million in
1979 and 2.8 million in 1982. As a percentage of total em-
ployment, the proportion rose from 1.8 percent to 2.2 percent
and then 2.8 percent. The data from 1988 on do not add much
to the percentage, other than the shift in measurement in 1994.

New information for 1995

Beginning in January 1995, two questions were added to the
ces which were designed to provide data on the self-employed
that would be consistent with the intent of the 1993 resolu-
tion on status in employment at the Fifteenth International

Conference of Labor Statisticians. This resolution pertained
to the categorization of self-employed persons according to
whether they were employers or, alternatively, worked on
their own account. Simply put, the questions sought to de-
termine whether persons who were self-employed (and whose
businesses were unincorporated) usually employed people for
pay and, if so, the number of employees they usually had in
their employ. Preliminary results suggest that the incidence
of employment of others in self-employed businesses is quite
low. That is, of the 10.4 million self-employed persons, on
average in the first 5 months of 1995 (not seasonally ad-
justed), only 2.2 million (21.4 percent) had paid employees.
Among the 2.2 million with employees, 33 percent had only
one paid employee, while only 14 percent had six or more.
Further, of the 2.1 million who held second jobs in which
they were self-employed, only 6.9 percent hired employees.
These numbers clearly imply that the basic nature of self-
employment in the United States involves persons working
on their own account. What undoubtedly occurs is that, as
the small businesses expand and bring on employees, the
owners incorporate their businesses, thereby shifting the
class-of-worker classification to wage and salary employ-
ment. This type of transitional shuffling, while not readily
measurable, is very likely an ongoing event, so that the self-
employed remain essentially single entrepreneurs.

SELF-EMPLOYMENT IS A VERY IMPORTANT SOURCE OF JOBS in the
United States, accounting for roughly 1 out of every 11 em-
ployed people. This is much lower, however, than the pro-
portion of nearly 1 in 5 that existed immediately after the
end of World War II. Along with the reduced incidence came
the virtual eradication of unpaid family work that supported
the self-employed. As self-employment has diminished, in-
corporated self-employment and just plain “working for
someone” have become more prominent. The measurements

[rable 5. J Incorporated self-employment in the United States, annual averages, 1989-94

[Number in thousands]
All industries Nonagricultural industries ‘Agricutture
Yeor T Incomporated totar__| Incorporated Total _| Incorporated
employed solt- Percent employed sew. Percent employed seit Percent
employed employed employed
117,342 3,444 29 114,142 3.311 29 3,200 193 42
417,914 3,489 3.0 114,728 3,356 29 3,186 133 42
116,877 9,406 29 113,644 3,278 29 3,233 128 40
117,598 3,547 30 114,381 3,998 3.0 3,207 149 46
119,307 3,582 30 116,232 9,424 29 3,074 158 51
123,060 4,049 33 119,651 4,049 34 3,409 197 58

* Data for 1994 are not directly comparable with data for eatlier years due to
‘@ major redesign of the crs and the introduction of 1990 census-based popu-

lation controls, adjusted tor the estimated undercount.
Sounce: Current Population Survey.

8 Monthly Labor Review January/February 1996



John E. Bregger

John £. Bregger
recently retired from his
position of Assistant
Commissioner for
Current Employment
Analysis, Bureau of
Labor Statistics.

Measuring self-employment

in the United States

About 1 of 11 workers in the United

States

was self-employed in 1994; the Current
Population Survey has been the lone

source of data on self-employment
over the past 55 years

ata on self-employment in the United
D= are regularly collected as part of

the monthly Current Population Survey
(crs) of the U.S. labor force. The cps began in
1940, and data have been available essentially
consistently since 1948. The survey came into
being as a basis for determining how many
people were unemployed at a time when the
United States was still suffering the effects of
the Great Depression of the 1930’s.'

‘The crs classifies employment in three prin-
cipal ways: according to industry, for which a
Standard Industrial Classification (sic) system
is used; according to occupation, for which a
Standard Occupational Classification (soc) sys-
tem is utilized; and according to class of worker.
Self-employment is identified under this third
schema, in which delineations are made among
wage and salary employment, self-employment,
and unpaid family work. Subdistinctions are also
Possible, such as private and government within
wage and salary employment and employer and
own account within self-employment. With re-
gard to the latter, the United States only partially
follows the most recent standards set by the In-
ternational Labor Organization (1csE-93).?

This article describes the measurement of
self-employment over the course of the post-
World War II era; the changes that have occurred
over time in this measurement, including those
Modifications associated with the revamping of
the entire labor force questionnaire beginning
in 1994; and some additional questions that elicit
information on the extent to which the self-em-

Monthly Labor Review

ployed hire wage and salary workers, added in
January 1995.? The article also includes a short
analysis of trends in self-employment, covering
the entire period from 1948 to the present.

Measurement of self-employment

As in all labor force surveys, the major thrust of
the cps is to delineate persons in the population
above a certain age (16 in the United States) ac-
cording to whether they have jobs and therefore.
are employed; are looking for work and there-
fore are unemployed; or are out of the labor force
altogether. Employed persons can be subdivided
in many ways, including class of worker, (In the
measurement of class-of-worker status for the
unemployed, the identification relates to their
status in the job last held, if any.) This classifi-
cation is fairly straightforward. In the current
survey—that is, as of January 1994—persons
who are employed are asked the following ques-
tion: “Were you employed by government, by a
private company, a nonprofit organization, or
were you self-employed (or working in a family
business)?” The parenthetical part is asked only
of households in which a family business has
already been identified at the beginning of the
questionnaire and is therefore used as a basis for
identifying unpaid family workers.

Persons responding in the CPS that they were
employed by a government, a private company,
or a nonprofit organization are classified as wage
and salary workers. Persons who respond that
they are self-employed are asked, “Is this busi-

January/February 1996 3


mentioned in this article are carried out today through the
Current Population Survey—the same labor force survey that
has been doing the job for the past 55 years. im)

Footnotes

ACKNOWLEDGMENT: Steven Hipple, an economist in the Division of Labor
Force Statistics, Bureau of Labor Statistics, prepared the tables and verified the
data presented in this article.

* For a history of the crs, see John E. Bregger, “The Current Population
Survey: a historical perspective and ais" role,” Monthly Labor Review, June
1984, pp. 8-14.

7 Intemational Labor Organization, Bureau of Statistics, Newsletter no. 5,
September 1993.

+ Earlier Monthly Labor Review articles describing self-employment in the
United States include John E. Bregger, “Self-employment in the United States,
1948-62,” January 1963, pp. 37-43; Robert N. Ray, “A report on self-em-
ployed Americans in 1973,” January 1975, pp. 49-54; T. Scott Fain, “Self-
employed Americans: their number has increased,” November 1980, pp. 3-8:
and Eugene H, Becker, “Self-employed workers: an update to 1983,” July 1984,
pp. 14-18.

“The changes in the survey are described in Sharon R. Cohany, Ane E., Polivka,
and Jennifer M. Rothgeb, “Revisions in the Current Population Survey Effec-
tive January 1994," Employment and Earnings, February 1994, pp. 13-37.

* Anne E. Polivka and Stephen M. Miller, “Thecps after the Redesign: Refo-
cusing the Economic Lens,” forthcoming in National Bureau of Economic Re-
search volume, for CRIW Labor Statistics Measurement Issues Conference held
Dec, 15-16, 1994, in Washington, DC

Polivka and Miller, “The ces after the Redesign.”

7 Pid.

* Bid.

Where are you publishing your research?

The Monthly Labor Review will consider for publication studies of the labor force,
labor-management relations, business conditions, industry productivity, compensa-
tion, occupational safety and health, demographic trends, and other economic de-
velopments. Papers should be factual and analytical, not polemical in tone. Poten-
tial articles should be submitted to: Editor-in-Chief, Monthly Labor Review, Bureau
of Labor Statistics, Washington, DC 20212-0001.

Monthly Labor Review January/February 1996 9



Measuring Self Employment

ness incorporated?” Those who respond in the affirmative
are also classified as wage and salary workers. The “no’s”
are the self-employed. The rationale for classifying the in-
corporated self-employed as wage and salary workers is that,
legally, they are the employees of their own businesses.

This form of questioning has been followed on a fairly
consistent basis since 1948. However, prior to 1967, there
was no question on incorporation of a business for those
responding that they were self-employed in their own busi-
nesses; the addition of such a question had an immedi-
ate and marked impact on measurement, as can be seen in
table 1, which presents annual average data on the number
and percentage of self-employed persons from 1948 to 1994,
Changes relating to the measurement of class-of-worker sta-
tus as a result of the 1994 cps redesign were quite limited.
The main addition was the identification of persons working
for nonprofit organizations, which, of course, has no effect
on measuring self employment. Also, the questions pertain-
ing to the class-of worker identifier were shifted to precede
questions on industry and occupation, which could have had
some effect on the estimates.

Postwar trends in self-employment

Several conclusions are immediately evident from table 1.
One is that self-employment is not nearly as significant a
part of employment in the United States at present as it once

was: even with a growing population, the total number of
self-employed persons in 1994 was less than in the late
1940’s. The primary reasons for this are twofold. First, agri-
culture in general, and small farming in particular, has di-
minished greatly in the United States. The cause of this is
multifaceted, but certainly involves the disappearance of the
smal] farm in favor of large farming operations, extensive
mechanization, and the concomitant growth in farm produc-
tivity. Second, there has been a marked trend toward incor-
porating businesses, both in agriculture and in the non-
agricultural sector. The latter is particularly evident in the
change from 1966 to 1967. In that 1 year, when a question
was added to the survey that sought to determine whether
the self-employed business was incorporated, there was a
marked drop in both the number and percentage of self-em-
ployed persons.

One might conclude from the 1967 change that a total
break in the series had occurred, and such an assessment
would be largely correct. However, it is probably also accu-
Tate to surmise that incorporating businesses—often for tax
purposes—has been a growing trend in the United States.
Therefore, it is likely that, if the incorporation question had
been asked over the entire 1948-66 period, the data would
still show almost the same degree of change overall in the
incidence of self-employment. In other words, close to the
same drop in percentage would have occurred—that is, from
18.5 percent to 9.6 percent—but there would have been no

SIREN Self-employment in the United States, annual averages, selected years, 1948-94
[Numbers in thousands]
Allindusties Nonagricuttural industries Agricutture
Yeor Total Selt- Total Sex- Total Self
employed | employed | Peet | empicyed | employed | Percent | employed | employed | Percent
58,343 10,775 18.5 50,714 6,110 120 7,629 4,665 61.1
58,918 10,359 176 51,758 6,019 n6 7,160 4,340 60.6
62,170 9,577 15.4 $5,722 6,851 10.5 6, 3,726 578
65,778 9,098 13.8 60,318 6,303 10.4 5,458 2,795 512
71,088 8,304 18 66,726 6,097 94 4381 2.297 527
72,895 8,127 Wt 68,915, 5,991 87 3,979 2.136 53.7
74,372 7,170 96 70,527 5,174 7.3 3,844 1,996 51.9
78,678 7,031 89 75,215 6,221 69 3,463 1,810 52.3
85,846 7,427 87 82,438 5,705 69 3,408 1,722 50.5
99,903 8.642 87 95,938 7,000 73 3,365 11642 488
107,150 9,269 87 103,971 7,811 75 3,179 1,458 45.9
117,914 10,160 86 114,728 8,760 76 3,186 1,400 439
119,307 10,335, 87 116,232 9,003 77 3,074 1,332 43.3
123,060 10,648 87 119,651 9,003 75 3,409 1,645 48.3
Prior to 1967, estimates of the self-employed included persons who oper- to a major redesign of the cpsand the introduction of 1990 census-based popu-
ated their own incorporated businesses. These individuals were not identified —_ lation controls, adjusted for the estimated undercount.
as wage and salary workers until that year.
® Data for 1994 are not directly comparable with data for earlier years due ‘Source: Current Population Survey.

4 Monthly Labor Review January/February 1996



Tal

2 Unpaid famity workers in the United States, annual averages, selected years, 1948-94

[Numbers in thousands}
Allindustries Nonagricuttural industries Agriculture:
Year Unpaid Unpaid Total Unpaid
emiicves | tamly | Percent Total fornity Percent | employed | fomily | Percent
workers workers workers
58,343 1,701 29 50,714 384 08 7,629 1,317 173
58,918 1,573 27 51,758 383 7 7,160 1,190 16.6
62,170 11634 26 55,722 Bit 2 6,450 11123 174
65,778 1,499 23 60,318 598 1.0 5,458 901 16.5
71,088 1,278 18 ¥ 600 9 4,361 678 15.5
72,895 1,142 1 68,915 564 & 3,979 578 145
74,372 1,052 14 70,527 505 7 3,844 547 14.2
78.678 1,001 13 75.216 502 7 3,463 409 144
85.846 969 10 82,498 483 6 3,408 386 113
99,303 710 7 95,938 413 4 3,365, 207 88
| 107,150 474 4 103,971 289 3 3,179 185 58
| 117,914 359 3 114,728 252 2 3,186 107 3.4
| 119,307 323 3 116,232 ‘218 2 3,074 105 34
123,060 180 1 119,651 131 a 3,409 49 14
* Data for 1994 are not directly comparable with data tor earlier years due to lation controls, adjusted for the estimated undercount.
‘a major redesign of the crs and the Introduction of 1990 census based popu ‘Source: Current Population Survey.

sharp reduction in self-employment in 1967.

In January 1994, an entirely new questionnaire was in-
troduced into the CPS, with data collection carried out in a
wholly automated environment. In addition, another break
in the series occurred at that point in time as a result of the
introduction into the estimation process of 1990 population
figures, adjusted (for the very first time) for an estimated
undercount of the population.‘ (In early 1996, data for the
years 1990-93 will be readjusted for these population ef-
fects, thereby pushing this break in the series back to the
beginning of the decade.) Because of these changes, data
comparisons that bridge the year 1994 must be made with
caution. BLS researchers Anne E. Polivka and Stephen M.
Miller have addressed the non-population-related data ef-
fects that occurred in 1994 and estimate that the new-ques-
tionnaire/new-data-collection effects would yield about
640,000 more self-employed in 1993 than did the official
procedures then in place.> Switching from 1980 to 1990 cen-
sus weights seemed to have very little impact on estimates of
self-employment, unlike the estimates for total employment.
Using data for May of 1993, BLs researchers calculated that,
if anything, the population adjustment produced a small de-
cline in total self-employment, an inconsequential decrease
of 32,000. With a numerical increase in measured self-em-
ployment of only 313,000 between 1993 and 1994, given the
combined estimation and population effects, it can only be
concluded that there was a reduction in the incidence of self-
employment between the 2 years.

One might ask, given that there was very little change in

the direct question relating to the class-of-worker category,
why there was a somewhat pronounced positive data effect.
Polivka and Miller found that the increase was essentially
limited to women: at the same time that there were more
self-employed women, “a significantly smaller proportion
were classified as wage and salary workers—either govern-
ment or private—and as unpaid family workers,”* implying
a'small shift in the class-of-worker categorization. They sur-
mise that this was “probably due to a combination of changes
incorporated into the revised questionnaire, including a di-
rect question about household businesses at the beginning of
the labor force questions, the reordering of the class-of-
worker and industry/occupation questions to prevent inter-
viewers from entering responses without asking all the
appropriate questions, and the general changes in the mea-
surement of employment embodied in the revised cps.””

Unpaid family workers

Unpaid family workers are persons who work on a family
farm or in a family business for at least 15 hours a week and
who receive no earnings or share of the profits of the enter-
prise. Data for this group, like data for their self-employed
“relatives,” have been available on a fairly consistent basis
since 1948 and appear in table 2. The most interesting fea-
ture of the data is that the incidence of unpaid work in fam-
ily businesses has steadily diminished over the 46-year pe-
riod examined, whereas self-employment stopped declining
(as a percent of total employment) during the early 1970's.

Monthly Labor Review January/February 1996 5