Small-business owners still looking forward to a rebound (opinion)

A lot more than four years following the start of Great Recession, unemployment remains stubbornly high, economic growth is tepid, and housing prices remain depressed.

But as bad as much Americans may still own it, what’s happened to small-business owners has been worse. Consider employment. Both number of people doing work for others and doing work for themselves has declined because the Great Recession began. But job loss among the self-employed has been more pronounced. Bureau of Labor Statistics data indicate that between December 2007 and could 2012, the amount of people utilized by others declined by 2 percent. Over the same period, the amount of people doing work for themselves fell by 4 percent.

THE FANTASTIC Recession also took a bigger bite from the incomes of self-employed people than those doing work for others. Data from the 2010 Federal Reserve Survey of Consumer Finances show that the income of the family led by a self-employed person declined 11 percent in inflation-adjusted terms from 2007 to 2009, while that of the family led by a wage earner rose 1 percent.

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Economists have identified several reasons the economic depression and weak recovery have disproportionately affected small-business owners. Area of the effect is based on the tendency of companies to absorb the responsibility of a bad economy. Many businesses do not cut wages or lay off employees. Which means the self-employed often suffer larger income drops than those doing work for others.

But in the existing downturn and weak recovery, that general pattern has been exacerbated by small-business owners’ disproportionate contact with real estate. To begin with, a higher percentage of small companies are in the construction and property industries.

What’s more, small-business owners took on significant amounts of property debt in the years prior to the economic downturn. Not merely did 25 % of small-business owners borrow on home equity to finance their companies, however they also were much more likely to defend myself against more home-equity debt generally. Federal Reserve Survey of Consumer Finances statistics show that the worthiness of home-equity debt for the normal household headed by a self-employed person increased 48 percent between 19. On the other hand, among those doing work for someone else, the worthiness of home-equity debt for the normal household actually fell 29 percent over the same period.

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This greater borrowing implies that real household debt was higher among small-business households than others when the housing and financial crises hit. Actually, Federal Reserve data show that families led by those running a business for themselves had debt about 50 percent higher than that of families led by people doing work for others.

Helping small-business owners now won’t be easy. There is little policymakers can do to greatly help them enhance their economic situations without fixing bigger problems in the real-estate and construction sectors.

And therein lies the crux of the problem. All policymakers, no matter their political persuasion, want to repair our nation’s real-estate problems. But so far, the Washington brain trust hasn’t think of a comprehensive solution. Until policymakers do, it’s hard to observe how the higher economic pain of small-business owners could be lessened in virtually any significant way.

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