Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed on a podcast: https://mortonjohn.libsyn.com.
Last week the Census Bureau tried to shock Americans by reporting “Three-fourths of the Nation’s Businesses Don’t Have Paid Employees.” It’s a headline appropriate for Halloween.
That was the 2016 reality of nearly 25 million firms in this country. How can that be? It’s easy to understand, if you just look around. Think about all those trucks on the nation’s highways driven by owner-operators. These are independent entrepreneurs who carry goods for one or more shippers. Often they bid for loads, stopping for coffee and to pray for falling fuel prices.
However, before we celebrate these highway heroes of the competitive market place, let’s understand they face conglomerate trucking empires and shippers who press constantly for lower trucking fees. It can be a hard life, not only due to the ordeals of extensive travel, but as a result of grinding nature of commercial independence.
In the past five years (2011 to 2016), transportation and warehousing nationally has been the fastest growing business sector of non-employee firms, up by just less than 80 percent. That growth overshadows the 32 percent increase in similar Indiana firms.
Across all business sectors in America, non-employee firms grew by 10.3 percent, while Indiana managed only a 5.2 percent increase. Part of those increases are related to continuing out-sourcing of labor. Where payroll would be an internal function of a big firm, now an accountant may be contracted to direct a team which will perform the payroll functions, but be employed by a third party that manages contract workers.
Where a large manufacturing firm had carpenters, painters and plumbers on the payroll in previous decades, now it may contract with firms that supply skilled workers who no longer receive the benefits once enjoyed by those craftsmen. Even if they are unionized, those workers do not negotiate with the manufacturing firm, but with the labor aggregator.
Many people work out of their homes as independent contractors on a project basis. Nationally, of these non-employee entrepreneurs, 11 percent had sales or receipts in 2016 of $100,000 or more. In contrast, 79 percent had income from their “businesses” of less than $50,000. How much of this revenue was retained after expenses, is not reported in the Census data.
Possibly among the 16 million firms where revenues were less than $25,000 per year, we may be looking at hobbies for retired persons, restless full-time workers, or necessary, supplemental income for desperate minimum wage employees. Of non-employee firms in transportation and warehousing, 58 percent (1.1 million) earned less than $25,000 in 2016. Do you think many of these were hobbyists, retired, or just restless?
These data, available for all states and counties in the U.S., are evidence of growing fragmentation in our economy. Some applaud this restructured distribution of economic power. Others lament an erosion of collective influence in economic affairs as power is concentrated in fewer firms dealing with more diffused labor markets.