9277: Freelancers Fading Fast…?

From USA TODAY…

Fewer people choose to be self-employed

By Laura Petrecca, USA TODAY

The ranks of self-employed Americans are shrinking.

In August, 14.5 million people were self-employed, down 2.1 million from the most recent peak in December 2006, according to Bureau of Labor Statistics data.

The number of “incorporated” self-employed workers — those who incorporate to gain legal protection and other benefits — began its decline in 2008. Last month, 5.1 million people were in this category, down 726,000 from August 2008.

The decline is a “troubling” trend, says Scott Shane, professor of entrepreneurial studies at Case Western Reserve University. This category, which usually represents businesses that hire more employees than the “unincorporated” self-employed, was showing healthy growth before the recession, he says.

Unincorporated self-employed — at 9.4 million last month — has changed little since last spring. It’s hovering at its lowest level in 25 years, says BLS economist Steven Hipple.

Contributing to the drop-off:

• Financial issues. With tightened bank lending, reduced savings and sluggish consumer spending, many can’t afford to start a business or keep an existing one going. Adding to the trouble: Diminished home values make it difficult to get the home equity loans that the self-employed often use for capital.

• Vocational moves. Self-employed workers who have lost income-generating opportunities — such as real estate agents and construction workers who were victims of the housing market’s slide — could be moving to more secure lines of work or opting out of the workforce altogether, says Ellen Rissman, a Federal Reserve Bank of Chicago economist.

“(Some people think) ‘I’m sitting at a desk and the phone isn’t ringing. Why am I doing this? When things get better, maybe I’ll try this again,’” she says.

• Psychological worries. “Constant news about the difficult economy makes people hesitant to venture out on their own,” says Kristie Arslan, CEO of the National Association for the Self-Employed. Many have concerns about how health care reform, tax policy and other regulatory issues could affect a new business, she says.

Folks receiving unemployment benefits also fret about trading in a steady check for the often-risky world of self-employment. Even if someone has a viable business idea, they still have to do a “cost-benefit analysis” to see if losing those benefits is worth the risk, Arslan says.

Those already running a business are also worried: Slightly more than half of self-employed individuals with no employees have an overall lack of confidence in the future of their business, vs. 36% of all small-business owners, according to a National Small Business Association’s 2011 midyear report.