Why the IRS and BLS Disagree on Self-Employment Trends

Are more or fewer Americans engaged in self-employment than a decade ago? Once you might think that it is a simple factual question, its answer relies on which federal government agency’s numbers you take a look at.

Internal Revenue Service (IRS) data indicates that self-employment is growing. The tax authority estimates that the collection of self-employed Americans increased 26.4 percent between 2000 and 2011, the latest year data is accessible.

By contrast, the Bureau of work Statistics (BLS) data indicates that self-employment is shrinking. The statistical agency liable for measuring the condition of work markets finds that the variety of self-employed Americans decreased by 0.7 percent between 2000 and 2011.

Some might see these conflicting numbers for instance of Benjamin Disraeli’s famous observation that “there are three sorts of falsehood: Lies, damned lies, and statistics.” But i think that the numbers could be reconciled if we understand the source of every.

The IRS measures self-employment by even if a taxpayer claimed the self-employment deduction on his or her 1040. Because taxpayers must pay self-employment taxes in the event that they have “ net earnings of $400 or more as a self-employed person” – which the IRS defines as someone in business for him or herself. A self-employed person within the IRS data is anyone who has a non-trivial amount of self-employment income, despite their other income sources.

Take me, for instance. i might be included the various self-employed within the IRS data because I earn greater than $400 per year writing, even if my primary job is as a professor.

The BLS measures self-employment by conducting a monthly survey of roughly 60,000 households to spot the employment status of household members 16 years of age and older. To determine each household member’s employment status, the BLS asks the respondent to spot whether each adult member of the household worked for pay or profit within the week of the survey.

If the household member had multiple job within the week, the respondent is asked to spotlight the household member’s primary job, that is defined because the one on which they spent the main hours. Respondents are then asked  (PDF) if the household member was “employed by the govt., a personal company, a nonprofit organization, or were they self-employed” to see in the event that they are self-employed.

If we return to me because the example, we will see why the IRS and BLS self-employment numbers differ. i wouldn’t be included some of the self-employed within the BLS data. Because my full-time job is as a professor. i might be classified as wage employed, even if I earned greater than $400 per year writing.

Understanding the source of the BLS and IRS self-employment numbers helps to tease out trends in self-employment. Fewer Americans look like making self-employment their full-time jobs than was the case a decade ago, but more people are engaged in self-employment at the side.

That conclusion jibes with anecdotal evidence. Many observers have noted that rise of the web has made it easier for folks to earn a little bit side income by trading goods on eBay or by renting out rooms of their homes through sites like Airbnb.

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