The Nonemployer Startup Puzzle

Nonemployer firms represent a large percentage of businesses; however, little is known about their dynamics (entry and exit). This report seeks to illustrate basic statistics about the prevalence of entry and exit for nonemployers and the local conditions that led to their entry. Nonemployer start-up rates across states and industries seem countercyclical to labor market changes, while employer start-up rates move in line with overall economic cycles. These characteristics of start-up rates indicate that starting a nonemployer firm is more likely to be an occupational decision, while employer firm start-ups are more likely to be responses to economic opportunity. The report uses special tabulations produced by the U.S. Census Bureau’s Nonemployer Statistics. For 2002-2004, Census matched nonemployers across years to determine entry and exit by major industry and state. A copy of the report is located at: www.sba.gov/advo/research/rs354tot.pdf and the research summary can be found at: www.sba.gov/advo/research/rs354.pdf.