Many abandon self-employment as Entrepreneurship is dropping in the U.S.

While the U.S. job market has taken off since the Great Recession, American entrepreneurship is still struggling to find its feet. In April, only 14.6 million U.S. residents were self-employed — that’s 10 percent fewer than five years ago, according to federal data released Friday. In that same window of time, the self-employment rate — or the percentage of all workers who are self-employed — has dropped almost a full percentage point to 10.3 percent.
Meanwhile, the rate of entrepreneurship is slowing. The share of U.S. residents who tried to launch businesses last year dropped 5.9 percent from the year-earlier period, according to a May report from the Kauffman Foundation of Entrepreneurship.
Many small business owners, like Stash in Montana, grew too discouraged to continue, particularly as opportunities for wage and salaried positions improved. Other would-be entrepreneurs are still too scarred by the recent downturn to start ventures.
“It’s not so surprising that people who were self-employed are getting jobs,” said Scott Shane, an entrepreneurship professor at the Weatherhead School of Management at Case Western Reserve University. “What’s surprising is that we’re fairly far into the recovery and yet we have fewer self-employed people now than we did at the start … Nobody really knows what’s happening here.”
Shane said the decline in self-employment could be partially attributed to a “shellshocked” workforce with a lingering pessimism about the economy. Tightening credit markets have exacerbated the issue.
In the first quarter of the year, lending to small businesses was still 23 percent below the levels it was at in the first three months of 2007, according to data compiled by Thomson Reuters and PayNet.
“I think it’s probably more financing than psychology,” said Steven Rose, an economics professor at Georgetown University’s Center on Education and the Workforce. “But I also think there’s a certain hesitancy in people. Some think, ‘Gee, I probably can’t pull this off.’ ”
There are some bright spots in the self-employment picture. Most notably, a drop in the entrepreneurship rate usually happens in concert with a drop in the unemployment rate.
And the current crop of people boot strapping a living for themselves — including those who came through the crisis — appears to be a hardier lot than those in the heady days of 2007. Some of them are even hiring. Businesses with less than five employees added a net 47,000 jobs between the end of 2009 and October 2011, according to the most recent federal data. That was a vast improvement over 2008 and 2009, when the same category of firms shed 440,000 workers.
In other words, fewer people are launching businesses these days, but those who do are finding more success. This is the kind of thing labor economists like to see, because it means fewer Americansare “necessity entrepreneurs” who simply can’t find any other way to work...