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The Honolulu Advertiser
Posted on: Wednesday, July 20, 2005

Fewer people working for themselves

By Jim Hopkins
USA Today


SAN FRANCISCO — In a possible sign of a strengthening economy, self-employment plunged last month as entrepreneurs sought steadier income and benefits with established companies.

The number of self-employed workers in June fell 3.1 percent, or 303,000, from the month before, new Labor Department data show. It was the second-consecutive month of big declines, and the third-biggest monthly drop since 1995, a USA Today analysis found.

Self-employment tends to fall as the economy grows. That's especially true among laid-off workers who start tiny companies after failing to find work in slow times.

Now that companies are hiring again, "more people are finally being reabsorbed into full-time jobs," says Maria Minniti, associate economics professor at Babson College in Massachusetts.

Economists caution that it might be too soon to call a permanent shift in self-employment, because monthly labor data is subject to revision. "This is a bouncing number," says David Levine, a professor at the University of California-Berkeley.

The new data follow a study published last month that found the number of U.S. adults involved in entrepreneurship fell 20 percent last year from 2003.

The Florida International University study estimates 18 million Americans were starting companies or working for firms less than four years old last year. Study author Paul Reynolds says the decline is not worrisome because it returns startup work to the still-healthy levels of 1998. But, "if we have another 20 percent drop, then I'm worried." That's because in the long term, most innovation takes place at startups that survive and prosper.

Many never do, however. Sara Swift-Newsome, 31, ran a personal shopping business in Charlotte, N.C., for about a year. But she closed it in April, and took a job at Banana Republic because sales didn't cover the $600 monthly cost for her venture's Web site.

Others say they're struggling because of one of the fastest-rising business expenses: health insurance. In Madison, Ala., Leigh Christian, 40, works nearly full time for an equipment testing company, partly for the health coverage it provides.

That means she only moonlights at the small-business advisory, Madison Marketing&Business Consulting, she started in 2003. Paying for her own health insurance would cost as much as $400 a month — too much, Christian says.

Health insurance has been cited as the No. 1 problem facing small companies in surveys by the National Federation of Independent Business trade group.