Economy and Small Business

EYE ON THE PIE: Indiana less entrepreneurial than nation

March 26, 2007

For many people, owning a business is a dream. As a nation, we idolize such people as "entrepreneurs." We assemble data that show "small business" as the heart of the economy (even though the definition of "small" is fewer than 500 employees).

Let's look at this segment of the economy. Oops. The data we have are not as good as we want. We do not know how many proprietors or business operators are full-time and how many are part-time. It could be that many a heroic "entrepreneur" is running a hobby business as a tax dodge.

What? Americans in business mainly to avoid taxation? The idea of writing off that pickup truck as a business expense because you do a few plumbing jobs on weekends? Impossible. Charging off a room in your house as an office and the computers used by your children as investments? Never.

The best data we have about non-farm proprietors are from the U.S. Bureau of Economic Analysis, which relies on the forms you file with the Internal Revenue Service. These data show that business owners (proprietors) accounted for 14 percent of all U.S. jobs in 1990 and 18 percent in 2005. For Indiana, the numbers were somewhat lower at 12.5 percent and 15.3 percent, respectively. We ranked 40th among the states in 1990 and 47th in 2005.

Do these facts mean Hoosiers are less entrepreneurial than those in other states? Do they suggest we are more honest (less inventive) with the tax code? Do Hoosier tax codes or regulations discourage proprietors? Or are the opportunities for entrepreneurial efforts less prevalent in Indiana?

We could see 1990 to 2005 as a period when individual business owners were the innovative new spirits fighting stodgy old businesses-or when Blondie opened her own catering service, to Dagwood's dismay.

But all this enterprise did not provide gains to entrepreneurs that equaled those of wage and salary workers. The national average for wages and salaries grew 72 percent, compared with an advance of 69 percent in average non-farm proprietor earnings. Indiana's record in this period was different: Average wages and salaries grew only 65 percent (a weak 43rdfastest), while average proprietors' earnings for Hoosiers advanced 72 percent (19th-fastest).

This higher rate of growth for non-farm proprietors moved Indiana from 34th in average earnings ($14,570) to 24th ($25,119) in 2005. Although proprietor earnings were rising, the average selfemployed Hoosier continued to earn less than the state's average wage and salaried employee. In 1990, Indiana proprietors earned 69 percent of the average for wage and salaried workers (38th in the country). This figure advanced to 72 percent in 2005 (22nd), but still left the Hoosier proprietor with $9,700 less than the Indiana wage and salaried employee. Does this suggest it is better to work for someone else than to be self-employed?

We cannot go too far in comparing the earnings of wage and salaried workers to those of proprietors. However, we don't have full information on benefits or hours worked. Many proprietors boast they work longer hours at their jobs because they love the activity and the risk. Others delight in telling us they work fewer hours than wage and salary "slaves," that they are masters of their own time.

Today, we have university courses in entrepreneurial activities. Some oldtimers say it is not a subject that can be taught, that you have the "itch" or you do not. Those who teach the classes say the modern entrepreneur needs guidance through a complex maze of tax codes, regulations and business relationships. If both are right, success might be in knowing where to scratch.



Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, send e-mail to mortonjmarcus@yahoo.com.
Source: XMLAr01100.xml
ADVERTISEMENT

Recent Articles by Morton Marcus

Comments powered by Disqus