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Unemployed But Not Self-Employed

Self-employment typically increases after a recession. That's not happening this time, a sign that the recovery remains weak

The number of self-employed Americans is at the lowest level in eight years, a sign that the economic recovery isn't yet strong enough to nurture new businesses. Some 8.68 million people worked for themselves in August, the fewest since January 2002, the Labor Dept. reports. That's down 13 percent from a record 9.98 million reached in December 2006, 12 months before the latest recession began.

Self-employment tends to increase during and immediately following economic slumps as tight labor markets prompt recently fired workers to venture out on their own. The data this time reflect the tight credit and falling demand choking small businesses, says Scott Shane, an economics professor at Case Western Reserve University in Cleveland. "The failure rate of self-employment picked up a lot during the recession," he says. "The indications are not good at all." Only when larger companies begin hiring well after a recession ends does self-employment usually start to wane, Shane says.

A broader measure of self-employment, which includes people whose businesses are incorporated, fell to 13.9million in the second quarter, down 7.2percent since the start of the recession and the lowest in eight years, according to Labor Dept. data. Gene Fairbrother, lead business consultant for the Grapevine (Tex.)-based National Association for the Self-Employed, says fortunes may be about to turn. Calls to the NASE's business hotline are starting to change from questions about financing to queries about how to help a business increase sales, he says: "That would be an indicator that for small businesses the economy seems to be stabilizing."

The bottom line: Self-employment typically increases after a recession. That's not happening this time, a sign that the recovery remains weak.

Schlisserman is a reporter for Bloomberg News.

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