TODD GREENE FEDERAL RESERVE BANK OF ATLANTA MAY 1, 2012 Microenterprise as a Recovery Strategy for Local Communities 1

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. 2

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 partners Some of the individuals who are proprietors may also be employed by someone else 3

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. 4

Self-Employment and Wage-and-Salary Employment, Wage-and- salary employment Self- employment 5

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

Self-employment as a Percent of Total Employment,

Growth 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. 8 Source: Bureau of Economic Analysis, 2011

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? 9

Recent Research on Effects of Entrepreneurship 10 StudyMeasure of entrepreneurship GeographyMeasure of economic performance Deller and McConnon (2009) Establishments that employs 1-4 employees (County Business Patterns data from the Census Bureau) US StatesEmployment and income growth Goetz et al (2011)the Kauffman Entrepreneurship Index (KEI) US StatesEmployment growth Rupasingha and Goetz (2011) The share of nonfarm proprietorships (Bureau of Economic Analysis data) US CountiesEmployment and income growth and change in poverty

Research Findings 11 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.

Implications of Research Findings 12 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.

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 Research needs to be done on what self-employed need in order to be successful. 13