78 percent of U.S. Businesses Have No Payroll Employees

A whopping 78 percent of the nation's businesses have no payroll employees.

Thomas Sigel falls into this vast pool of what the U.S. Census Bureau calls nonemployer businesses - legions of people running their own Web design companies, nail salons, mail-order houses and landscaping operations.

An average of 2,356 people a day in the United States became "lone wolves" during 2005, giving the nation 20.4 million such businesses. That's a 30 percent jump from 1998.

Why the sharp rise in nonemployer work? The number of employer firms actually rose 8.7 percent during the same period - and the number of employees increased 7.6 percent.

"Certainly one thing would be an increase in Internet-based businesses," said Jim Wharton, a Census Bureau statistician. He noted that the fastest-growing nonemployer industries are Web search portals, up 41.2 percent between 2004 and 2005, and Internet service providers, up 16.6 percent.

But it's a mistake to conclude that Americans are leaving the culture of bosses and co-workers in droves, said Scott Shane, an economics professor at Case Western Reserve University.

A chief explanation for the rocketing pace of nonemployer businesses lies with how the Census Bureau defines them, Shane said: The government counts businesses even when they are not a person's primary source of income, so long as they have receipts of $1,000 or more and are subject to federal income tax.

In fact, other statistics show the rate of self-employment - the percentage of the labor force that works for itself - edging down in recent years. That suggests that many of the new lone wolves are people selling goods on eBay and pursuing other sideline jobs to supplement their main income, Shane said.

Another Case economics professor, Susan Helper, said some lone wolves are a function of economic distress. Laid-off workers often fashion themselves as consultants or independent contractors when they lose payroll jobs, she said.