MNI INTERVIEW: Self-Employed Could Keep US Joblessness Low

The share of self-employed workers is rising rapidly in the U.S. economy as people embrace more flexible work arrangements post-Covid, and the trend could put downward pressure on the unemployment rate even as hiring slows, Federal Reserve Bank of St. Louis economist Victoria Gregory told MNI.

The self-employed , or those who report earning most of their income from self-employment, made up almost 11% of the 157 million employed workers in the U.S. at the start of the year, according to Gregory's analysis of detailed BLS household survey data, roughly a percentage point higher than 2019.

Self-employment was less susceptible to initial employment declines at the start of the Covid-19 pandemic and also recovered more quickly to pre-pandemic levels by the summer of 2020. It dipped again during the winter of 2021 but has since recovered from that as well.

"To get an accurate understanding of the labor market you need to look at many different variables. The household survey can measure non-traditional types of employment, and that's where the unemployment rate comes from," Gregory said in an interview. "If the trend continues, it's going to be more important for policymakers to pay attention to the household survey."

FLEXIBILITY KEY

The rise of entrepreneurship and gig work since 2020 is the opposite of what happened during the Great Recession, when the share of self employment fell, and has contributed to current U.S. labor market strength, Gregory said. (See: MNI INTERVIEW: Fed May Pause When Core Prices Fall Under 3.5%)

The industry mix among self-employed workers has stayed relatively constant during Covid, led by construction and professional services. The real estate and transportation sectors have become more popular, which can be traced to the housing boom and growth in demand for delivery services, Gregory said.

More women chose self employment in the past two years than the pre-pandemic trend, which "may suggest that the burden of home and child care placed on women in 2020 made self employment a more attractive option," she said.

"I was trying to see whether people switched into industries that were less affected by the Covid recession or had less layoffs in order to avoid that risk in the future, and I didn't find that. People are switching to being self employed based on other characteristics of the job," like flexible hours, higher earnings or a better skills fit.

PAYROLLS SURVEY

Self-employment is not counted in the BLS establishment survey -- one of two major factors accounting for the discrepancies between the household and the establishment surveys, the other being that multiple job holders are counted only once in the household survey but more in the establishment survey.

The household survey has shown notably weaker job creation in recent months, even as the unemployment rate sank to a 50-year low of 3.5% in July, Federal Reserve Chair Jerome Powell noted at his last press conference.

Economists are unsure why the two surveys have diverged in recent months but say the differences are likely temporary.