The Rise of the Sole Proprietor, and the Future of Employment
According to the latest numbers from the Census Bureau, the number of one-man and one-woman businesses in the U.S. has grown 28 percent over the past decade.
Totaling 22.5 million as of 2011, these "nonemployer businesses" -- businesses that have no paid employees and are subject to federal income tax -- now account for roughly "75 percent of all U.S. business locations," according to the Census Bureau, and include everything from insurance businesses to real estate agencies to barbershops.
And there's no sign that growth will slow down.
Today's David vs. Goliath Battle
According to Forbes columnist Elaine Pofeldt, technology is helping many of these firms achieve success despite their modest size. These businesses are leveraging the Internet to reach new customers, and some are using platforms like Amazon.com to give them a global storefront.
Pofeldt expects that as more folks catch on to this opportunity, "we're going to see a lot more of these firms in coming years." But is that a good thing?
It's obviously good for these sole proprietors, who are able to keep costs down thanks to helpful apps and cloud-based programs.
On top of that, small businesses have traditionally been "engines of growth for the economy and, particularly ... job creators," according to Nathan Sheets of Citi Research. In fact, since the late 1970s, small businesses have generated about 60 percent of new jobs. What's more, most of this growth comes from these "young firms -- new start-ups," says Sheets.
Historically, a rise in small-business numbers has foreshadowed a period of economic prosperity. But the same technology that's making one-man shops so easy to run may mean today's small businesses might not have a similar effect.
Technology May Be Too Good
Today, retailers can automate their business processes using Amazon's seller services so that Amazon (AMZN) not only handles the transaction, but manages inventory and fulfills shipment as well -- eliminating the need for hired help.
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On the other hand, "one-man" businesses like insurance companies and real estate agencies -- the kind which usually do need additional bodies -- are more frequently making use of contractors, who are responsible for their own taxes and benefits, and who can be easily let go on a whim if money gets tight.
Technology makes it easier to manage these pseudo-employees, with constant cellphone contact, virtual computer monitoring, etc., reducing the need for business owners to provide a physical office.
But Here's the Scary Part ...
As economic analyst Dane Stangler writes, "The U.S. economy has enjoyed positive rates of new job creation for the past thirty years largely because of the steady pace at which new firms come into existence.... [T]he net creation of new jobs among [large established companies] is usually zero."
Given this history, it's not all that surprising to read about IBM's (IBM), Lockheed Martin's (LMT), or Bank of America's (BAC) recent or upcoming layoffs.
However, if small firms are also not hiring -- moving from one-person shops to full-fledged small businesses, America's economy at large could be doomed.
If small firms continue to remain hesitant to add employees, or continue to prefer technological alternatives to hiring help, years from now, we may look back on today's 7.6% unemployment rate and reminisce about how low it was.
Motley Fool contributor Adam Wiederman has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, International Business Machines., and Lockheed Martin. Try any of our Foolish newsletter services free for 30 days.
