Tuesday, July 17, 2007

I work for myself, and nobody works for me 

A new issue of the Federal Reserve Bank of Minneapolis' FedGazette features small firms. Minnesotans on average are now working in smaller firms than they did before. Most interesting: Minnesota has had 18% growth in its population, but a 36% growth in the number of firms who hire at least one worker. (The graph on the left shows the share of firms who hire no workers; nationwide, it's almost four out of five.)

It's worth thinking about that graph -- those four of five firms are what we think about when we say entrepreneur. I'm waiting to see the rest of this video that studies three such men and what they are able to achieve. I'd say, the reduction in the size of the firms we have in Minnesota is part of our transition away from manufacturing and towards other types of value-adding employment.

Interesting to me is this short note on limited liability corporations or LLCs.

One might think that the rise in LLCs, as well as business registrations in general, could be an indicator of business and economic activity; indeed, the very act of creating a legal business entity would seem to be at least a weak signal of owner motivation and attitude. But that does not appear to be the case, at least from what we know, which isn�t much.

Brian Winrow, an assistant professor at the School of Business at Emporia University in Emporia, Kan., recently looked at LLC trends in South Dakota. He said one of the reasons for the rise in LLCs is a very practical one. Entrepreneurs are more educated today and, as such, more likely to understand the comparative utility of an LLC. It�s a much easier process, as well as less expensive, to form an LLC than a corporation, yet an LLC offers much of the same liability protection for an owner.

But aside from the hard numbers, there is virtually no research on whether a rising pool of LLCs has any discernible economic effects�on firm survival, employment, sector concentration and other matters�or whether LLC growth is simply a legal phenomenon, as more of the self-employed seek liability protection.
I have been debating whether to track the local economy's LLC creation for awhile. It would appear I should think about it some more.

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