The largest number of business in the Tri-Cities don’t have storefronts and most have a low public profile. In fact, much of the public are not even aware they exist. They’re what the Bureau of Labor Statistics (BLS) calls nonemployer businesses. The most recent count shows there’s 30,445 of them in the Tri-Cities’ two metropolitan statistical areas (MSA). That dwarfs the 9,786 firms many people recognize as local businesses.

These local nonemployer firms had $1.2 billion in receipts at the last Census Bureau count. They also account for a little more than 13% of the total employment in the seven-county region and about 14% of the region’s real GDP (total economic output). So, they are as much a part of the economy and labor market as Ballad or Eastman.

To peel the cover back and get a peek at this part of the labor market you must get into the weeds of what BLS and Census reports do and do not count and when they come up with their reports.

Comparison of the number of nonemployer firms in the Tri-Cities and how many were lost to the Great Recession to traditional firms and their recession loss.

Nonemployer firms – in many ways – are the heartbeat of the entrepreneur spirit.  A nonemployer business obviously has no paid employees other than the owner. The firm must have business receipts of $1,000 or more and is subject to federal income taxes. Think self-employed people or independent contractors.  It may be the owner’s primary source of income or a side gig. And much of their economic impact is off the radar of the monthly labor market reports.

Nonemployer firms cover a wide swath of trades and professions. The actual work varies from lawn maintenance, independent building trade people, cosmetologists, graphic artists, food truck operators, financial advisers, medical technicians, tech-support, computer coders, medical technicians, and even doctors.

These firms get little, or no note in monthly employment or nonfarm job reports and there’s a bigger time lag in the reporting their numbers since they are part of Census’ Business Patterns report. But even though they’re off the radar much of the time, they are an increasingly important part of the economy and labor market. They’ve always existed by they’re gaining new prominence in today’s evolving economy. That importance is rooted in the reality that the nature of work is changing and increasingly focused on individuals and their productivity rather than multi-employee firms. Simply put, nonemployee firms are at the epicenter of the entrepreneurial ecosystem. Many analysts believe they will play a bigger role in an emerging economy increasingly reliant on contract work and labor outsourcing rather than full-time employees. Business and industry like this because it reduces labor and human resources costs and the need for a larger physical building and sometimes tech infrastructure footprint.

The monthly BLS payroll report where you get nonfarm totals is a survey of convention firms and employers, so nonemployer firms are mostly excluded. That means the annual nonfarm job count you see is understated since a nonemployer firm is also one job. In 2016 – the latest year for the nonemployee firm count – the total was understated by as much as 15%. That year’s BLS report showed an annual nonfarm job total of 200,900 for the seven-county Tri-Cities area. But if you add the nonemployer firms’ one employee, the total was a little more than 231,000. That’s closer to the employment number in the household survey used to estimate the unemployment rate. It’s also an exception to the accuracy standard for the two labor market reports. The payroll report is viewed as more accurate because it’s a larger sample. But since the household survey includes those who are self-employed its total is a somewhat better labor picture for regional employment.

The largest local number of nonemployer businesses is in the Other Services labor sector. They typically outnumber the number of conventional Other Services firms due to the nature of jobs in that sector. And unlike their conventional cousins, they increased their total after the recession.

The next largest number is in construction – 4,540.  Like conventional construction firms, the nonemployer group took a big hit from the recession, down 1,311. The recession wiped out 182 of the Tri-Cities’ conventional construction firms.

Not being able to find workers with the right skills is a constant complaint from employers. There are two solutions to that issue. The first is what’s already happened here in the Tri-Cities – a concentrated effort to educate and enable a ready-to-work and skilled tech and trade workforce. But there’s another part of the nonemployer firm sector – one that may be growing faster than the trades sector. It’s made up of highly skilled professionals in the medical, technical, and professional fields. Employers are increasingly looking at these type workers and independent contractors in their effort to increase productivity and profitability. There’s also the reality that the internet makes it easier to outsource some highly technical or analytical work. For example, information analysts and computer coders who live outside the Tri-Cities can just as easily get the job done as someone who lives here.  Some cities are trying to cash in on this trend by attracting telecommuters. Tulsa is one example. Telecommuters who relocate there can get $10,000 for moving. And Tulsa isn’t the only place testing these waters. Nonemployer firms won’t replace the traditional workforce, but its role is expected to continue increasing.

The most current Business Pattern and Nonemployer Firm data is for 2016 with an update in a couple of months.

Categories: ECONOMY