What is motivating the self-employed? How were the self-employed impacted by the COVID shock?

Victoria Gregory, economist at the St. Louis Fed, discusses the labor force and trends in self-employment in the U.S. and the forces that affect those who want to work for themselves, particularly during the COVID-19 pandemic. The views expressed in this video do not necessarily reflect those of the St. Louis Fed or Federal Reserve System.

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00:00 The Pandemic and Self-Employment
00:49 Why Self-Employment Changed
01:35 Great Recession vs COVID Recession
02:14 Future of Self-Employment

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#employment #selfemployed #economy #jobs #workfromhome #smallbusiness

Transcript:
So what happened to the self-employed during the pandemic? If you look back a few decades, the share of the labor force who was self-employed hovered around one-tenth. This number was kind of declining right up until the pandemic, at which point it started to increase again.

And then you can also ask, how were the self-employed impacted by the COVID shock in February, March, April 2020? So they lost employment by less than the general labor force. So they had a smaller dip in employment, but then they recovered back to their pre-pandemic level a lot more quickly than the rest of the labor force.

Another interesting change in the pool of self-employed over this period was that the share of women increased. So it's typically about two-thirds men and one-third women; but during 2020 and beyond, the share of women in that pool started to increase.

So what factors may have driven the changes that we saw among the self-employed during the pandemic? So more generally, it seems reasonable that during downturns people might pivot to self-employment to replace income from a lost job if they have some type of skill they can market to other people. And the gig economy may have offered some additional opportunities to do this. It also is possible that, during the pandemic, people started rethinking their working lives. So maybe they decided now that they value more flexibility and autonomy and independence or some choice in terms of what type of skills they want to pick up on the job.

And another factor is that the pandemic increased a kind of conflict between work and family and childcare, and perhaps self-employment was one solution for this issue.

So how did the paths of self-employment in the COVID recession compare to that of the Great Recession? So in contrast to the pandemic, self-employment during the Great Recession actually declined. So there's a few reasons for this.

One is that the natures of the two recessions were just very different. The Great Recession hit the construction industry really hard, which that itself contains a lot of self-employed workers. It's entirely plausible that a lot of these small businesses were cash strapped and had to shut down. Another factor is that the gig economy wasn't as prominent back then, which means that there weren't as many opportunities like that around to pick up some of the slack.

So where might we expect self-employment to go in the future? So right now, levels are still elevated to where they were before the pandemic, but they are slightly dipping and returning back to pre-pandemic levels. So there are some forces that may mean this increase is going to be sustained and some that may mean that it's going to fully go back to where it was. So one factor that's happening is that the labor market has been very good from a job seeker’s perspective, with high labor demand coming from firms. So that may draw a lot of these self-employed workers back into the traditional labor force.
Another factor is that it's not surprising that many small businesses that start up, especially during downturns, fail to grow and end up being very short lived. So we could see a lot of those small businesses kind of shutting down in the future.

But then going the other way, there's been a big expansion in the gig economy over the past few decades, which has created a lot of new opportunities for self-driven work; and if that continues, then we may expect this increase in the self-employed to be more sustained.

For more information on this topic and others, visit stlouisfed.org.

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