What is a business?
(10).jpg?w=728)
By Chang Se-moon
No, I am not talking about rapid increases in minimum wages, required conversion of part-time workers to full-time workers, controlling processing fees of credit cards, excessive controlling of working hours of employees, blind support of unions that prompt plant closing, and more.
Practically, all sensible economists in Korea have voiced a unanimous opinion on these policies that have led to more harm than good.
What I am talking about relates to changes in the types of businesses that are rapidly becoming a reality.
Today's article is based on the March 13 email I received from the U.S. Census Bureau, titled “What Is a Business.” This article was written by Andrew W. Hait who is a statistical economist at the Census Bureau.
The latest data show that “more than three-fourths of U.S. businesses may be run out of someone's home and have zero employees.”
In Korea, traditional businesses are facing excessive pressure from rising labor costs and abusive unions. These businesses have a strong motivation to outsource self-employed businesses with no employees, hoping to replace full-time employees.
Self-employed businesses that have no employees are called non-employer businesses or non-employers. They are not employers since they have no employees.
Last October, the U.S. Census Bureau released a new report with data on non-employers. This report challenges the notion of just what is a business.
According to the report, there were 7.8 million businesses that employed almost 127 million people with over $6.4 trillion in annual payroll, or “about $50,769 per employee.”
The report also showed that in 2016, there were almost 25 million non-employer businesses, representing “more than 76.2 percent of all businesses.” These businesses were self-employed with no paid employees.
The report also shows that the number of self-employed businesses is growing at a faster rate than businesses that have paid employees.
In the U.S., between 2012 and 2016, non-employer businesses “increased by more than 2 million, a 9.1 percent increase. In the same period, the number of employer businesses increased by 4.4 percent.”
The report finds that the self-employed, i.e., non-employer businesses are more popular in certain industries.
One example cited relates to beauty salons. Employer beauty salons had 435,796 employees in 2016, while there were 730,782 self-employed people in the same industry. No less than 62.6 percent of the total number who worked in this industry were self-employed in 2016.
Note that rapidly advancing technologies will allow many workers to have “the capacity to utilize their skills to work as independent contractors.” Further, “while it is likely that these non-employer businesses do not offer the benefits that employers do, the average revenue of many of these businesses helps offset the difference.”
The study cites earnings of the self-employed tend to be higher than employees who perform the same types of work.
One interesting question relates to how this trend affects the future labor market. This question is significant to the Korean economy, since many businesses in Korea may be looking for types of work that can be done by the self-employed, rather than full-time employees. There are several benefits of this approach of outsourcing non-employers.
First of all, to the extent that the substitution of full-time employees by outside self-employed workers is feasible, these businesses can stay away from labor-management problems that appear to be daily occurrences in Korea.
Secondly, as the economy slows and sales decrease, these businesses can easily terminate any contracts with the outside self-employed, unlike the cumbersome process of laying off full-time employees. No long-term commitments are needed in utilizing outside self-employed workers.
Thirdly, the outside self-employed will have an added incentive to being efficient, since they can easily be replaced by other self-employed people.
In the fourth place, businesses can stay away from rising costs of fringe benefits when these businesses are working with outside self-employed, who are independent contractors. As the economy grows, fringe benefit costs tend also to increase. Fringe benefits include health and life insurance, paid vacations, and more that are paid on top of base salaries.
In the fifth place, government regulations on minimum wages, limited number of working hours per week, and others do not apply to contracts with outside self-employed, assuming that overly aggressive political leaders do not extend their controls to these self-employed businesses.
Finally, from the view of local economic development officials, it is important to encourage the growth of the self-employed, since these officials can “leverage the skills of their workforce via non-employers” when they try to recruit large employer businesses.
It is important to recognize the importance of education, including vocational and technical in nature, for the self-employed to grow.
It is also important to understand that the more the government tries to regulate private sector industries, the harder these industries will be looking for types of work that can be done by outside contractors.
Chang Se-moon (changsemoon@yahoo.com) is the director of the Gulf Coast Center for Impact Studies.