Staying put: self-employment rates among non-movers.

Robinson, Sherry

ABSTRACT

Non-metropolitan areas have traditionally been at a disadvantage in terms of economic development. The community characteristics that are conducive to the birth and survival of small businesses are often found lacking in rural areas. Some studies, however, have found the rate of self-employment to be higher in rural than in urban areas. While economic decline has led many workers to migrate to more developed areas, others have chosen to create their own jobs rather than to relocate and give up their way of life. This study seeks to provide further insight into this issue by examining the self-employment rates of movers and non-movers in urban, suburban and rural areas. The results show that although people in non-metropolitan areas generally have higher rates of self-employment than those in more urban locations, natives of non-metropolitan areas have even higher rates than those who moved to the rural area.

INTRODUCTION

Self-employment provides a work opportunity not only for those who seek independence and job flexibility, but also for those who cannot easily find suitable work due to their location or other limitations. Lichter (1989, p. 199, 200) points out that rural women in particular "have been an economically disadvantaged group historically" and face restricted employment opportunities. Both the quantity and quality of jobs in rural areas have been seriously affected by decreases in rural industries, including farming, and increased foreign competition (Lichter, 1989). This economic decline has led many workers to migrate to more developed areas, further decreasing the population and purchasing power in non-metropolitan areas.

Some rural residents may choose to create their own jobs rather than relocate. Previous research (e.g Clark & James, 1992; Robinson, 2003, 2002) has shown that non-metropolitan (non-metro) residents often have higher rates of self-employments than their metropolitan (metro) counterparts. In their study of business owners in South Dakota, Tosterud and Habbershon (1992) found that many of those people had started businesses in order remain in their chosen location, which, in most cases, was very close to where they were born and raised. This study examines this phenomenon by comparing the 2005 self-employment rates of those who have and have not moved from their original locations, concluding that non-movers, especially in rural areas, consistently have higher self-employment rates.

PROBLEMS AND OPPORTUNTIES FOR RURAL BUSINESS OWNERS

Numerous factors put rural areas at a disadvantage in terms of economic development and encouragement of entrepreneurship. Because of the lower levels of economic development, and perhaps because of the different lifestyle led by rural residents, "rural areas are seen by many as being on the fringe rather than a part of the mainstream of both the economy and society" (MacKensie, 1992, p. 92).

Naturally, rural areas have lower populations, but these residents also have less aggregate and individual buying power (Barkley, 1993; Kean, Gaskill, Letstritz, & Jasper, 1998). Metro and non-metro areas often have very different business environments due to such elements as geography, demographics and social networks (Beggs, Haines & Hurlbert, 1996; Frazier & Niehm, 2004). Lower levels of economic development, scarcity of affordable professional services, and smaller markets can present significant challenges to rural business owners (Chrisman, Gatewood, & Donlevy, 2002; Fendley & Christenson, 1989; Kale, 1989; Lin, Buss, & Popovich, 1990; Small Business Administration [SBA], 2001; Tigges & Green, 1994; Trucker and Lockhart, 1989).

Location may influence business starts and success in that geographic region is one determinant of resource availability (Chrisman et al., 1992). Rural areas often offer fewer support services and less-developed transportation and electronic infrastructures which could hinder non-metro businesses attempting internet-based businesses as well as brick and mortar operations as the cost and quality of telecommunications becomes increasingly important to businesses (Corman, Lussier, & Nolan, 1996; Freshwater, 1998; Robinson, 2004; SBA, 2001). Essential business services such as accounting, banking, advertising, and legal services may be both difficult to find and more expensive in rural areas (Corman et al., 1996; Fendley & Christenson, 1989; Frazier & Niehm, 2004; Freshwater, 1998; SBA, 2001; Trucker & Lockhart, 1989). In addition, the trend toward the merger of small banks with larger ones less willing to makes loans to small businesses combined with biases against non-urban areas, make it more difficult for small rural businesses to gain financing (Chrisman et al., 2002; Green & McNamara, 1987; SBA, 2001). These negative factors could logically lead to lower rates of self-employment in non-metro areas.

Despite these problems, some studies (Jack & Anderson, 2002; Robinson, 2001; Sullivan, Scannell, Wang, & Halbrendt, 2000; Tosterod & Habbershon, 1992) state that small business owners have found benefits to being located in a rural area. Taking population into consideration, Clark and James (1992) found the rate of business ownership to be higher in non-metro areas of the midwest. Furthermore, no significant rurality-based differences were found between the rates at which new firms and jobs were created (Lin et al., 1990). Self-employment rates have been found to be higher in Pennsylvania's non-metro counties (Robinson, 2003). In addition, Hout and Rosen (2000) found that the sons of farmers, who are usually rural residents, had higher rates of self-employment than did sons of clerical, retail, and manual workers. In Mississippi and Ohio, business birth rates were lower in non-metro counties, but business termination rates were the same or lower, suggesting that rural residents were less likely to start businesses, but were more likely to continue with them (Robinson, 2002; Robinson & Janoski, 2005).

Even in areas where the environment would seem to work against entrepreneurs, business ownership provides an additional work alternative when job opportunities are unavailable or do not fulfill all of a person's needs (Tigges & Green, 1994). Many people in rural areas are limited by location, physical difficulty in commuting to a work site, or personal and family situations (Coates et al., 1991; Tigges & Green, 1994). Studying new business owners in South Dakota, Tosterud and Habbershon (1992) found that the majority of those people had started their businesses in order remain in their chosen location, which, in most cases, was less than 30 miles from where they had spent their entire lives. Two reasons for this may be family connections and low perceived risk of failure, as described by rural women in Pennsylvania (Robinson, 2001; Robinson & Watson, 2001). Given these findings, it seems logical that non-movers could have higher rates of self-employment, especially in rural areas.

To gain a better grasp on rural self-employment trends, this study further examines the self-employment rates of people who have not relocated from their original areas (non-movers), especially those who live in non-metro areas. In the following section, the methodology of this study is presented, along with the analysis of the results.

METHODOLOGY, RESULTS AND ANALYSIS

Data regarding the number of men and women who are self-employed, their location and migration status were gathered via Data Ferrett from the 2005 Current Population Survey's Annual Social and Economic (March) Supplement. People who moved were categorized by the location and direction of their move--MSA to MSA, non-MSA to MSA, MSA to non-MSA, etc. For the purposes of this study, everyone who had moved was grouped into one category for comparison with non-movers. The population for this study was taken from the variable "class of worker," which includes people employed by the government and private enterprises, as well as the self-employed (incorporated and unincorporated), unpaid workers and those who have never worked. People under age 18 were not included. The geographic categories in this study are based on the Census Bureau's classifications of principal city, balance metro and non-metro. Although technical definitions vary, in this study the terms "rural" and "non-metro" are used synonymously.

Chi-square analyses were performed on these data to determine if there were significant associations between the number of movers and non-movers who were self-employed and the geographical variable principal city/balance metro/non-metro. Totals were compared, as were the sexes, such that men were compared to men, and women to women. In every case, the resulting chi-square statistics were very high and p<.000.

As shown in Tables 1, 2 and 3, non-metro residents had higher percentages of unincorporated self-employed workers. However, these proportions, which were determined by dividing the number of self-employed by the total number of people in that category (for example, non-movers in non-metro areas), were even higher among non-movers. In fact, non-metro non-movers were almost 70% more likely than non-metro movers to be self-employed (non-incorporated). Among men, non-metro non-movers were 53% more likely to be self-employed (non-incorporated), but among women, non-metro non-movers were twice as likely to be self-employed (non-incorporated). In fact, non-metro women's 7.93% is second only to both categories of non-metro men, topping all other women and men.

Among the incorporated self-employed, a slightly different story emerged. Those in the balance metro category had the highest rates, but once again, non-movers had higher proportions than movers. In this case, the numbers and corresponding percentages were smaller, but the non-movers of the balance metro category were 51% (total), 63% (men) and 32% (women) more likely to be (incorporated) self-employed than their counterparts who were movers. Therefore, in all direct comparisons, non-movers had significantly higher rates of self-employment.

Because many people with private sector jobs also have their own businesses as second jobs, the "private" component of the "class of worker" variable was isolated. From this group, the subset of people with second jobs (other work) was selected in order to determine the proportions of these private workers who declared self-employment as their other work (SEOTR). Tables 4, 5 and 6 show the numbers and proportions of all movers and non-movers who primarily work for a private employer, but also have another type of work and the proportions of these people whose other job is self-employment. These self-employment rates were determined by dividing SEOTR by the total number of people in that category with other jobs. Chi-square analyses with geography and migration status again resulted in very high chi-square statistics and p<.000 for all comparisons.

Again, with the total workers, men and women, non-movers had higher rates of self-employment, this time in regard to other work. Among non-movers, non-metro areas showed the highest rates, consistent with pattern of primary job (unincorporated) self-employment rates.

However, this trend was reversed among movers, with the highest rates shown in principal cities and the lowest in non-metro areas.

It is also interesting to note that although non-movers had significantly higher proportions of people whose other work involved self-employment, movers were about twice as likely to have secondary work of any type. For example, 14.35% of all movers engaged in other work, while only 7.77% of non-movers had second jobs. However, of these people with other work, 17.59% of non-movers' other work was self-employment, but that proportion dropped to 12.39% for movers.

Taken together, the results of this study show that non-movers were more likely to be self-employed regardless of location, sex or incorporation status. Among those who work primarily for a private employer but have a second job, non-movers again had higher rates. Non-metro residents regardless of migration status had the highest rates for unincorporated self-employment with the exception of non-metro women movers whose 3.93% was second to balance metro's 3.95%. The same pattern was found with SEOTR non-movers. Interestingly, this trend was reversed among SEOTR movers as non-metro residents consistently had the lowest self-employment-as-other-work rates, despite the fact that non-metro residents were also the most likely to have second jobs.

DISCUSSION AND CONCLUSION

Entrepreneurship provides rural residents an avenue for financial improvement and independence without giving up their unique way of life (Tosterud & Habbershon, 1992).) Established social networks can make it easier for residents in tightly-knit rural communities to start and maintain businesses (Cooke & Morgan, 1998; Frazier & Niehm, 2004; Jenssen & Keonig, 2002; McQuaid, 1997; Robinson, 2001; Sullivan et al., 2000). These social bonds are likely to be influenced by migration status and the number of other people who were born and raised there (i.e. non-movers). This would be consistent with qualitative data from Robinson and Watson (2001, p. 52-3) in which respondents are quoted as saying, "If I lived in a more populated area ... I might not have done it as quickly, "and "I don't know that I would have been as brave in a larger city ... to open my own office." However, even in principal cities, non-movers had higher rates of self-employment, which could suggest that people who are natives to a given location are more willing to open businesses there.

Considering past research relating rural small business owners' desire to live in their home locations, and the high rates of self-employment among non-movers in non-metro areas, this study supports the notion that rural residents in particular may prefer to create their own jobs than to move away. This may be especially true among women, who are likely to have fewer job opportunities that meet their needs. Future research should be conducted to analyze this relationship in greater detail. If the people most willing to create their own employment are non-movers, it is important for local authorities and agencies to provide necessary education and training within the area, and to assist local residents in their efforts to create businesses, and possibly jobs.

According to Henderson (2002), rural companies tend to be smaller and have less income than those in metro areas. Although size was not a variable in this study, it seems likely that incorporated businesses would be larger than unincorporated ones. Glancey (1998) adds that small business owners in urban areas may be more interested in growth whereas rural business owners may be primarily motivated by lifestyle, which could lead to more small, unincorporated businesses in rural areas, and would be consistent with the findings of this study. The higher rates of incorporated self-employment in balance metro areas may be associated with larger businesses in more populated or wealthier areas. Future research should explore the relative size of businesses not only by location, but according to mover/non-mover status.

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Sherry Robinson, Penn State University

Table 1. Self-employment Rates Among Movers and Non-movers By Geography

Total Total Principal City

Movers 18,436,215 6,884,967
-Self-emp'd 407,240 104,930
(incorporated) 2.21% 1.52%

-Self-emp'd 973,799 336,076
(unincorporated) 5.28% 4.88%

Non-movers 106,799,162 30,090,706
-Self-emp'd 4,205,474 923,294
(incorporated) 3.94% 3.07%

-Self-emp'd 8,104,046 2,041,096
(unincorporated) 7.59% 6.78%

Total Balance Metro Non-metro

Movers 8,457,011 3,094,236
-Self-emp'd 257,057 45,254
(incorporated) 3.04% 1.46%

-Self-emp'd 441,157 196,566
(unincorporated) 5.22% 6.35%

Non-movers 56,159,254 20,549,202
-Self-emp'd 2,588,264 693,916
(incorporated) 4.61% 3.38%

-Self-emp'd 3,863,518 2,199,431
(unincorporated) 6.88% 10.70%

Table 2. Self-employment Rates Among Men Movers and Non-movers
By Geography

 Total Principal City

Men movers 10, 137,447 3,788, 213
-Self-emp'd 289,553 74,321
(incorporated) 2.86% 1.96%

-Self-emp'd 937,799 336,076
(unincorporated) 6.55% 6.11%

Men Non-movers 56,947,896 15,970,804
-Self-emp'd 3,081,170 678,717
(incorporated) 5.41% 4.25%

-Self-emp'd 5,038,245 1,255,769
(unincorporated) 8.85% 7.86%

 Balance Metro Non-metro

Men movers 4,750,830 1,598,403
-Self-emp'd 183,642 31,590
(incorporated) 3.87% 1.98%

-Self-emp'd 441,157 196,566
(unincorporated) 6.20% 8.62%

Men Non-movers 30,101,047 10,876,045
-Self-emp'd 1, 904,346 498,106
(incorporated) 6.33% 4.58%

-Self-emp'd 2,350,769 1,432,081
(unincorporated) 7.81% 13.17%

Table 3. Self-employment Rates Among Women Movers and Non-movers
By Geography

 Total Principal City

Women Movers 8,298,768 3,096,754

-Self-emp'd 117,687 30,609
(incorporated) 1.42% 0.99%

-Self-emp'd 309,608 104,454
(unincorporated) 3.73% 3.37%

Women Non-movers 49,851,266 14,119,902
-Self-emp'd 1,124,305 244,577
(incorporated) 2.26% 1.73%

-Self-emp'd 3,065,801 785,327
(unincorporated) 6.15% 5.56%

 Balance Metro Non-metro

Women Movers 3,706,181 1,495,833

-Self-emp'd 73,415 13,663
(incorporated) 1.98% 0.91%

-Self-emp'd 146,431 58,722
(unincorporated) 3.95% 3.93%

Women Non-movers 26,058,208 9,673,157
-Self-emp'd 683,918 195,810
(incorporated) 2.62% 2.02%

-Self-emp'd 1,513,124 767,350
(unincorporated) 5.81% 7.93%

Table 4. SEOTR Rates Among Movers and Non-movers By Geography

 Total Principal City

Total movers 18,436,215 6,884,967

Movers with other jobs 2,644,824 905,567
 14.35% 13.15%

-SEOTR 327,599 125,641
 12.39% 13.87%

Total non-movers 106,799,162 30,090,706

Non-movers /other jobs 8,294,315 2,135,697
 7.77% 7.10%

-SEOTR 1,458,967 368,851
 17.59% 17.27%

 Balance Metro Non-metro

Total movers 8,457,011 3,094,236

Movers with other jobs 1,195,484 543,774
 14.14% 17.57%

-SEOTR 147,002 54,955
 12.30% 10.11%

Total non-movers 56,159,254 20,549,202

Non-movers /other jobs 4,359,562 1,799,056
 7.76% 8.75%

-SEOTR 744,608 345,507
 17.08% 19.20%

Table 5. SEOTR Rates Among Men Movers and Non-movers By Geography

 Total Principal City

Total men movers 10,137,447 3,788,213

Men movers with other 1,413,713 471,071
jobs 13.95% 12.44%

-SEOTR 188,546 72.510
 13.34% 15.39%

Total men non-movers 56,947,896 15,970,804

Men non-movers/other 4,427,177 1,103,590
jobs 7.77% 6.91%

-SEOTR 871,757 201,996
 19.69% 18.30%

 Balance Metro Non-metro

Total men movers 4,750,830 1,598,403

Men movers with other 661,275 281,266
jobs 13.92% 17.60%

-SEOTR 86,981 29,055
 13.15% 10.33%

Total men non-movers 30,101,047 10,876,045

Men non-movers/other 2,303,000 1,020,587
jobs 7.65% 9.38%

-SEOTR 455,836 213,925
 19.79% 20.96%

Table 6. SEOTR Rates Among Women Movers and Non-movers By Geography

 Total Principal City

Total women movers 8,298,768 3,096,754

Women movers/other 1,231,112 434,496
jobs 14.83% 14.03%

-SEOTR 139,052 53,131
 11.29% 12.23%

Total women non- 49,851,266 14,119,902
movers

Women non- 3,867,138 1,032,107
movers/other 7.76% 7.31%

-SEOTR 587,210 166,855
 15.18% 16.17%

 Balance Metro Non-metro

Total women movers 3,706,181 1,495,833

Women movers/other 534,209 262,407
jobs 14.41% 17.54%

-SEOTR 60,021 25,900
 11.24% 9,87%

Total women non- 26,058,208 9,673,157
movers

Women non- 2,056,562 778,469
movers/other 7.89% 8.05%

-SEOTR 288,773 131,582
 14.04% 16.90%