Self-employed people are finding that their income is growing at a much faster clip than that of the general population, yet fewer people are starting their own businesses, according to data from the Commerce Dept. and the Internal Revenue Service.
Income growth for those who are running unincorporated businesses is on track to grow 6.8% this year, says Commerce. While that's well above the 4.2% growth rate for all personal income, it's just about even with the long-term average of 6.7% and far less than the 8.4% increase seen in 2003.
Brian Headd, the Small Business Administration's director of the Office of Economic Research, says that income for sole proprietors often spikes at the beginning of a recovery. That means sole proprietors ought to expect more moderate gains as we move further into the economic cycle. This time around, sole proprietors are receiving a much less sizable boost than they did during the previous economic recovery: In 1992, sole proprietors enjoyed income growth of 13.4%.
As the economic recovery continues and the labor markets recuperate, the share of people who choose to become entrepreneurs and go into business for themselves can be expected to decline. According to Internal Revenue Service estimates, the growth in sole proprietorships will be 1.7% this year, down from 1.9% in 2003 and 2.4% in 2002. The increasing cost of health care is also likely curbing the growth in sole proprietorships. Numerous surveys repeatedly have shown that entrepreneurs find health care to be their most vexing problem.
By James Mehring