By Joel Kotkin
While the economy has been miserable for small businesses, and many larger ones as well, the ranks of the self-employed have been growing. According to research by Economic Modeling Specialists International, the number of people who primarily work on their own has swelled by 1.3 million since 2001 to 10.6 million, a 14 percent increase.
This rise is partially reflective of hard times, and many of the self-employed earn only modest livings in fields such as childcare and construction. However, the shift to self-employment is likely to accelerate in the future and into higher-paying professions, for reasons including the ubiquity of the Internet, which makes it easier for some types of business to use independent contractors, as well as the reluctance of large firms to hire full-time employees with benefits.
Urban analyst Bill Fulton, who has looked into this issue, concludes we may be seeing a fundamental change in how the economy operates. “Even though there may not be jobs in the conventional sense, there is still work,” Fulton notes. “That’s the whole idea of the 1099 economy. It’s just a different way of organizing the economy.”
If the 1099 economy is the wave of the future, which regions and industries are currently at the forefront? We turned to EMSI for the data. We looked at the change in self-employment numbers for the nation’s 30 largest metropolitan statistical areas from 2001 to the present, and also from 2008, when the economy first nosedived and people started to scramble.
The biggest changes have taken place in four metro areas where the number of self-employed workers expanded over 10 percent growth between 2008 and 2012. Two of them, Houston and Seattle, have done very well in our previous rankings of economic performance, and the other two, Phoenix and Riverside- San Bernardino, Calif., suffered grievously from the housing bubble.
In the case of Houston, its 12 percent rise in the number of self-employed workers reflects not only widening economic opportunity, but also structural changes in the energy industry, the metro area’s prime economic driver. Since 2005, self-employment in the energy industry has grown 35 percent (and a remarkable 75 percent for support activities for oil and gas operations). At least part of this influx, EMSI suggests, could be attributed to land owners cashing in on royalties after leasing their property for drilling, but also to the demand for the increasingly specialized, and often high-tech, services required by that industry.
Like the energy industry, the burgeoning high-tech sector also has become more dependent on the 1099 economy. Encompassing people writing apps, doing technical consulting and working in the information sector, the numbers have surged over the past five years. This may help explain the double-digit increase in self-employment over the past five years in Seattle (up 10 percent) and San Jose (up 11 percent). In some cases this may be young people working on their own; in others, it could be older techies who may have lost full-time jobs but are now consulting.
Perhaps the most intriguing shift to the 1099 economy can be found not in hotspots like Silicon Valley, but in areas pummeled in the “housing bust” that are only now showing signs of recovery. This includes two areas, Phoenix and San Bernardino-Riverside, Calif., usually disdained by “creative class” pundits as backwaters, that have seen their number of self-employed grow 12 percent since 2008.
One clear sign of improvement is foreclosures have dropped 53 percent over the past year and are now below the national average. Meanwhile, net migration into Phoenix as well as the rest of Arizona is once again on the rise.
This recovery, notes local economist Elliot Pollack, follows the typical cycle for Phoenix, led by entrepreneurial activity. “Greater Phoenix is a small business town,” notes Pollack. ”Historically, during periods of growth, there is substantial new business and self employment formation.”
Phoenix’s self-employment boom suggests that the Valley of the Sun is primed for a comeback. But not all of the top 30 metro areas are seeing anything like this level of new entrepreneurial activity. The 1099 economy has grown at less than half Phoenix’s rate in such “creative” hotbeds as New York, Los Angeles, San Francisco and Boston. Self-employment is flat in many cities, including St. Louis, Cincinnati and Cleveland, and has actually declined in Kansas City, Chicago and Atlanta.
It may be too early to declare which economies will finally rebound fully from the ravages of the Great Recession. But for my money, I’d look to those places where people are taking the leap to go out on their own as the ones most likely to reinvent themselves when the economy begins expanding robustly again.
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