When it comes to incorporated entrepreneurs and unincorporated entrepreneurs: what’s the difference?
It is no surprise that the United States is a country of entrepreneurs. The rate of self-employment has been steady for decades and last year 10 percent of all workers in America were entrepreneurs – that’s 14.6 million people. That is nearly the same amount as in 1976, which was the first year that data on self-employed workers became available for both incorporated and unincorporated entrepreneurs. At the time it was slightly higher at 10.2 percent.
Although the self-employed rate has remained stable over the long-term, there have been some swings and we may be on the lower end of the spectrum at the moment. In the last 25 years, the self-employment rate has shifted from 10 percent to 12 percent, peaking in 1994 at 12.2 percent. However, this has not been the only change. There has also been a transition from unincorporated entrepreneurs to incorporated small businesses.
The incorporated self-employed rate increased from 2.9 percent in 1990 to 3.7 percent in 2014. Conversely, the unincorporated self-employed rate decreased from 8.5 percent to 6.3 percent in this same time. A part of this statistical shift can be due to the agriculture, forestry, and fishing sector that saw its numbers shift from 42.8 percent unincorporated to 33.5 percent.
A recent Pew Research Center study revealed an interesting trend when looking at incorporated versus unincorporated self-employed workers. The Pew Research Center found that about 24 percent of self-employed people in 2014, which was more than 3.4 million people, had at least one paid employee that year. However, this was much more prevalent among incorporated entrepreneurs as 41 percent of people in this group had at least one employee as opposed to 13 percent of the unincorporated.
Entrepreneurs have been hiring less and less. In 1995, the hiring rate was observed only among the unincorporated self-employed and at the time the rate was 20.7 percent, and has fallen since then. The incorporated data does not go back as far, but also shows a steady decline. In 2001, nearly 60 percent of entrepreneurs in this group had at least one employee, and in 2005 it was down to 56 percent, and then down to 41 percent in 2014.
The numbers are still being studied to decipher what is causing this trend. The data on incorporated entrepreneurs versus unincorporated entrepreneurs is relatively new, and the consideration of this data is in its infancy.