There are a number of theories that support the reason why people choose to enter self-employment, even in a culture where a huge number of companies and organizations offer employment to the mass population. According to the disadvantage theory, minorities who are being excluded from the labor market activity are actually forced into looking for substitute employment. At times when there is less to be expected from the labor economy, people would have to choose between unemployment and having low wages. These are the vulnerable workers who seek self-employment due to increased rate of unemployment and some augmented business receipts. In the downswings of the business cycle, those in the secondary labor market tend to choose self-employment, labeled by “high turnover rates, low-paying, low-skill jobs that lack structured opportunities for promotion with the firm” (Zuiker 32). Still, it tends to bring about jobless recovery to laborers, which bring about economic survival. Self-employment tend to carry both advantages and disadvantages to the larger economy, as being shown in the past years by which it generated opportunities of having daily income, yet demonstrated low returns on human capital investment.
Why Self-Employment Is Good for the Economy
The total number of self-employed individuals in the United States grew largely from 9.9 million in the 80s to approximately 17.3 million in 2007 (Lofstrom 1). This strong growth offered opportunities of earning income by being “one’s own boss” (Goetz, Fleming and Rupasingha 318), especially with changing technology and industry structure. Self-employment and small businesses are said to be the “engines of growth in the economy” (Lofstrom 1), and it offers economic mobility to the society. This is true, even for those who have low educational attainment and lower levels of skills and knowledge required for higher wages. In a labor market where opportunities for the vulnerable workers continue to diminish, self-employment allows low-skilled workers to enter the employment industry and offer growth into the economy, even with lower initial earnings and lesser earnings growth.
As for social economy, increase in the rate of self-employment led to growth of business ownership in the past few decades. According to Magnus Lofstrom, “the total number of self-employed individuals increased by more than 7 million between 1980 and 2007” (5). Over this period, female self-employment became a significant standard source of growth in the economy, especially when it came to business ownership, in which there were 3.5 million women who reported being self-employed in 2007 (Lofstrom 5). Although there was a decline in the number of U.S.-born business owners, it signified the increase in the level of educational attainment, which opened up the doors to immigrant entrepreneurs. These self-employed entrepreneurs represented a “sizable share of the state’s entrepreneurs” (Lofstrom 6), which augments the labor market performance of individuals within the economy. Self-employment can add to the annual earnings and annual asset income by the financial capital, which is therefore an income measure highlighting growth in the economy.
Why Self-Employment Is Not Good for the Economy
Self-employment offers a lag structure effect when it comes to wage and salary employment growth. In fact, Lofstrom stated: “A comparison of average earnings can be misleading if the success story among entrepreneurs is one of relatively few very successful business owners” (10). He stated that the median annual earnings of low-skilled entrepreneurs are significantly lower when compared to low-skilled firm employees (Lofstrom 10). More so, self-employment turned out to be less successful for the U.S.-born than the foreign born, especially since the earnings would have to be returned to capital investment for growth to take place within the business. Individuals who are self-employed tend to be vulnerable in terms of demographic traits, such as education, age, family composition, health, and ethnic composition, not to mention their workforce characteristics.
As for the economy, it is said that “self-employment are negatively related to subsequent macro-economic growth” (Van Stel, Wennekers and Scholman 4). If there are too few self-employment, there is low dynamism and low competition, so that businesses would not have enough incentives to enhance consumer welfare and project business growth. If, on the other hand, there are too many cases of self-employment, then too many firms would operate below the minimum efficient scale, so that a large number of economies of scale remains unexploited. Both of these cases prevent the occurrence of macro-economic growth rates through self-employment, in which the most influential underlying determinant is the process of economic development measured by per capita income. More so, self-employment is negatively related to economic growth, since the latter is accompanied by the presence of larger firms, which bring about opportunities for paid jobs and stable wages. Thus, self-employment signifies a decrease in economic growth and development.
Conclusion
Self-employment is good for the economy because it offers opportunities for the low-skilled workers of the society to earn their income by venturing on their own businesses. It is said to be the engine of growth in the economy, as it lowers the rate of unemployed citizens within the state. It leads to economic progress, especially if the labor industry is highlighted by fast-growing technology and a mass of business entrepreneurs, who desire more autonomy and flexibility in the commercial business. It offers economic growth and stabilization and represents a sizable share of the state’s entrepreneurs in the labor market industry, which in the end offers higher annual earnings for both the individual as well as the society.
Works Cited:
Goetz, Stephan J., David Fleming and Anil Rupasingha. “The Economic Impacts of Self-Employment.” Journal of Agricultural and Applied Economics 44.3 (2012): 315-321.
Lofstrom, Magnus. “Does Self-Employment Increase the Economic Well-Being of Low-Skilled Workers?” IZA Discussion Paper No. 4539 (2009): 1-46. Web. 21 April 2016.
Van Stel, Andre, Sander Wennekers and Gerard Scholman. “Solo Self-Employed versus Employer Entrepreneurs: Determinants and Macro-Economic Effects ion OECD Countries.” Panteia Research Report No. H201212 (2014): 1-34. Web. 21 April 2016.
Zuiker, Virgibnia Solis. Hispanic Self-employment in the Southwest: Rising Above the Threshold of Poverty. New York, NY: Garland Publishing, Inc., 1998.
