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Changes in Self-Employment: 2010 to 2011

Report Number ACSBR/11-21
China Layne
Component ID: #ti67794231

Introduction

From December 2007 to June 2009, the United States experienced an economic recession followed by a recovery year in 2010.1 In this brief, we examine changes in self-employment from 2010 to 2011 for the United States as a whole, the 50 states, the District of Columbia, and Puerto Rico. Self-employment includes individuals working in incorporated and nonincorporated businesses, this brief considers changes in both types of self-employment. In addition, we examine changes in total employment from 2010 to 2011 for these same geographies. Finally, we compare the demographic, social, and economic characteristics of incorporated and nonincorporated self-employed workers in 2011.2

What Is Self-Employment?

For tax purposes, the IRS defines workers as self-employed if they: (1) carry on trade or business as a sole proprietor or independent contractor, (2) are a member of a partnership that carries on trade or business, or (3) are otherwise in a business for oneself.3 Self-employed workers pay income taxes, the same as wageworkers, but they also pay a self-employment tax equal to the social security and Medicare taxes paid for wageworkers. Self-employment businesses can be either unincorporated, such as sole proprietorships, or incorporated, such as C and S corporations. Incorporated businesses exist as entities legally separate from their shareholders or members. Corporations hold many of the same legal rights as individuals, such as the right to bring lawsuits, buy and sell property, enter into contracts, and the obligation to pay taxes.4 One of the primary advantages of incorporating a self-employment business is that it limits the shareholders’ liability for the business’ debts and obligations. In addition, incorporated businesses have the advantages of unlimited life, transferability of ownership shares, the ability to raise investment capital through selling securities, and, in some cases, tax benefits.5

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1 “U.S. Business Cycle Expansions and Contractions,” (Cambridge, MA, National Bureau of Economic Research, Sept. 20, 2010), available on the Internet at <www.nber.org/cycles/cyclesmain.html>, accessed on August 4, 2011.
2 Firm level data on nonemployer businesses in 2010 are provided through the U.S. Census Bureau’s “Nonemployer Statistics,” available on the Internet at <www.census.gov/programs-surveys/nonemployer-statistics.html>. Firm level data on employer and nonemployer businesses in 2007 are provided through the “Survey of Business Owners,” available on the Internet at <www.census.gov/programs-surveys/sbo.html>.
3 “Self-Employed Individuals Tax Center,” available on the Internet at <www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center>, accessed on July 31, 2018.
4 Encyclopedia entry: “Incorporation,” available on the Internet at <entrepreneur.com/encyclopedia/term/82210.html>, accessed on June 30, 2012.
5 “Incorporating Your Business,” available on the Internet at <entreprenuer.com/article/77730>, accessed on June 30, 2012.

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