Advocacy and Census Focus on the Smallest Small Businesses with a New Nonemployer Demographic Data Project
By Patrick Delehanty, Acting Director of Economic Research, and Brian Headd, Research Economist
The Office of Advocacy’s research mission includes tracking the economic progress of all small businesses. Small businesses are often divided into those with and without employees. There are about 5.9 million employer businesses, or 20 percent of all businesses. The other 24.8 million are nonemployers—mostly self-employed individuals who operate their own business. The nonemployer component is less significant in overall economic terms – they generate around 3 percent of total business revenue. But they are very significant as a source of income for millions of people and as a point of entry into the larger business world. Nonemployer businesses are often the first stage before a business hires an employee and the path to entrepreneurship for disadvantaged and underrepresented demographic groups.
Having timely and comprehensive statistics on business owner demographics is critical to understand the accessibility of entrepreneurship. The Census Bureau’s upcoming Annual Business Survey (ABS) due to be released this December will contain statistics on the race, ethnicity, sex, and veteran status of owners of businesses with employees. However, this survey will not include businesses without employees, or nonemployers.
To close this gap and produce business-owner demographic totals of all businesses, the Census Bureau is developing a new data program, partially funded by the Office of Advocacy, to provide statistics of business owners by sex, ethnicity, race, and veteran status of nonemployer businesses. This new data initiative is called Nonemployer Statistics by Demographics (NES-D). It is detailed in the Census working paper, Nonemployer Statistics by Demographics (NES-D): Using Administrative and Census Records Data in Business Statistics. NES-D is critical to providing comprehensive statistics on business owner demographics going forward.
In the past, employer and nonemployer business-owner demographics were counted in Census Bureau’s Survey of Business Owners (SBO), conducted every five years. However, the SBO was discontinued after 2012. Its replacement, the ABS, only covers employer businesses, leaving a potential future gap for understanding all business ownership absent NES-D. The Office of Advocacy held a roundtable in January 2018 with the Census Bureau on this issue. The following month, Advocacy submitted a comment letter that captured the feedback from small business stakeholders, and reiterated the importance and need of producing nonemployer demographic data.
NES-D will be produced annually. Instead of survey collection, it will match administrative data from different federal sources, reducing collection costs and increasing the timeliness and accuracy of the data. Business surveys offer great detail, but they are costly, have timing and/or quality issues, and can place burdens on responding firms. A “big data” approach like leveraging administrative records can be cost effective, but it can also limit details available compared to surveys.
NES-D will be an improvement on the timing and frequency of the SBO which was available every five years with a lag of about three years. With the SBO, the most current demographic information on business ownership was at times about eight years old from collection. The latest available data on the number of women-, minority-, and veteran-owned businesses, although released in 2015-2016, was collected in 2012. The new program will offer annual demographic data on the owners of nonemployer businesses with detailed geographic and industry information.
The project is now in its second year of development. The first year of development of NES-D was promising as administrative records were available to Census Bureau for 90 to 95 percent of the over 24 million nonemployers. Census is also working with the Department of Veteran Affairs to verify veteran ownership so their status can be included in NES-D. Some of the characteristics available in SBO may not be available in the NES-D such as owner age, business age, and receipt size classes. While the data release schedule for NES-D is not known yet, data users and stakeholders can expect the Census Bureau to release the proof of concept data next year and officially release the data the following year. For more details on NES-D, please read the Census working paper.
With NES-D, Advocacy hopes that policymakers and researchers can continue to have a full understanding of the status of various groups of business owners and gain insight into an important aspect of entrepreneurship.