NYC Private Employment: An All-Time High

As I reported here, in 2007 total private employment in New York City, based on re-benchmarked annual average non-farm wage and salary employment data from the New York State Department of Labor, was slightly higher than at the peak in 2000, but below the all time peak in 1969. If you think this might understate the boom in the city’s economy you are right, because a rising share of those working in the city’s private sector are not wage and salary employees at all; they are self-employed business owners, freelancers, and independent contractors, and thus not captured by the Current Employment Survey data cited above. Based on recently-released data from the Bureau of Economic Analysis, which includes the self-employed, the number of private sector workers working in New York City roared past the 1969 peak in the late 1990s and has remained there ever since. It is a stunning boom hidden from the most commonly cited economic statistics, centered initially in Manhattan, spreading to Brooklyn, and moving on to the Bronx and Queens.

The BEA employment data is contained in the attached spreadsheet, with a table and chart. New York City had 3,275,500 private wage and salary employees in 2006 according to this source, less than the 3,430,000 in 1969 by about 155,000. But the 807,000 self-employed “proprietors” tabulated by the BEA in 2006 is more than double than the 338,500 working in the city in 1969. Total private employment, including both the employees and the self-employed, is now 4,083,211 in New York City, up 167,000 from the 3,916,560 in 2001, up 315,000 from 1969, and up 917,000 — nearly a million — from the grim year of 1977. By the standards of the 1970s or even the early 1990s, in fact, the 2001 to 2003 recession barely even happened once data on the self-employed are included. The city’s private employment fell by 602,000 from 1969 to 1977, and 240,000 from 1989 to 1992, but by just 83,000 from 2001 to 2003, despite the greatest disaster in the city’s history.

The growth of self-employment in New York City since 1989, as the information technology revolution took hold, has been staggering. The number of self-employed people working in the city more than doubled in those years, increasing by 416,000. The 106.3% increase in self-employment contrasts with the mere 2.8% increase in private wage and salary employment during those years, an addition of a mere 88,000 jobs. The self-employed now account for nearly 1 in 5 private sector workers in the city, or 19.8%, compared with just 9.0% in 1969.

The boom in self-employment actually hit Manhattan even earlier — the number of self-employed people working in that borough nearly doubled from 1977 to 1989 while the number in Brooklyn, the Bronx and Queens was essentially unchanged. With another 124,000-person, 71.5% increase from 1989 to 2006, self employment in Manhattan is now more than triple its level in 1977 at 297,000. Growth in self-employment has shifted to the outer boroughs, with Brooklyn recording nearly 150%, a 122,000 increase in the number of self-employed people working there from 1989 to 2006. In the Bronx, self-employment is up by 217% (more than triple) during the period, for an addition of 60,600 working there. And in Queens, self-employment doubled from 1989 to 2006, for an increase of 93,000. Staten Island’s self employment has increased steadily, and also nearly doubled from 1989 to 2006, for an increase of 17,500. Of course many self-employed people who work in Manhattan commute in from these outer boroughs as well.

The rise of self-employment over the past couple of decades is a national phenomenon, but it is greater in some places than in others. Among the places I’m paid to write about each quarter, Los Angeles County is most similar to New York City, as the county remains below its 1990 peak in wage and salary employment even as self-employment has soared. The 65.5% (195,000) increase in the Downstate Suburban counties of Nassau, Suffolk, Westchester, Rockland and Putnam, and the 47% (232,405) increase in Upstate New York from 1989 to 2006, are also impressive and more typical of places with slow growth overall than the doubling of self-employment in New York City. These areas, as reported previously, have also been adding local government jobs while New York City’s local government employment has been falling.

The character of self-employment varies, and the average impact of its growth is debatable.

In some cases the self-employed are entrepreneurs opening their own businesses. The self-employment boom has coincided with the re-populating of storefronts throughout New York City. At the time of the 1961 zoning resolution, at a time when a long-term shift from self-employment to work for large companies was well underway, city planners believed the city had more commercial space than it needed, but that clearly is not the case today. Working at home has also seen a resurgence in recent years. Moreover, many wealthy people, from private equity investors to entertainers and artists, now work for themselves rather than a corporation. Proprietorships and partnerships remain common in the professions, though there has actually been a shift away from self-employment in fields such as finance and law.

On the other hand, the shift to self employment is part of the reduction in the standard of living for younger generations compared with those who went before, in order to benefit those who went before. In highly unionized environments such as the public sector, the gains have been captured by retired and soon to retire union members, and offset by lower pay and diminished benefits for more recent hires via multi-tier contracts. But in the non-union private sector, executives have often enriched themselves, and benefited customers (such as retired public employees), while eliminating non-wage benefits for new hires altogether. Since all employees must equally benefit for employer pension contributions and health insurance payments to be exempt from income tax, this has required turning those new hires into something other than employees — independent contractors, freelancers or “permalancers.” By doing so, the business also shifts the employer share of Social Security and Medicare taxes to worker, and avoids paying unemployment insurance taxes and worker compensation taxes at all.

A true “freelancer” is “fired” every day, is only rehired if he or she does a great job, and never receives unemployment payments. They are the opposite extreme from public employees with seniority who can never be fired. And despite the efforts of groups such the Freelancer’s Union, and despite all the federal, state and local taxes they pay for health care for others, the self-employed often struggle to receive health insurance.

One thing that cannot be said of the 807,750 self-employed persons working in New York City as tabulated by the Bureau of Economic Analysis, in fact, is that they are working off the books and not paying taxes. The BEA data comes from a variety of administrative sources including, for the self-employed, Schedule C of IRS personal income tax form 1040. Those not filing that form would not be known the BEA and not included in the data.

There is no question how the City of New York views the self-employed, however — as victims to be taken advantage of. Whereas a retired person has all their retirement income exempted from state and local income taxes, the self-employed must pay a second New York City income tax, the Unincorporated Business Tax. They end up paying more than corporate, non-profit and public employees, and vastly more than the retired, with identical incomes, as I explained here. The non-governmental advantages of New York City have been enough to continue to attract the young and self-employed so far, but all things considered they are treated better by Los Angeles — or just about anyplace else in the United States. From a health insurance point of view, they’d be better off in Canada, which has had an even bigger entrepreneurship boom than the United States.

Given that New York City’s private-sector employment fell by just 83,000 from 2001 to 2003, if the self-employed are included, it is not unreasonable that the City of New York is forecasting the loss of a mere 90,000 jobs in this recession. But given that the forecast of a modest recession is enough, given the decisions and non-decisions made to benefit those cashing in and moving out, to create a projected fiscal disaster, one wonders what tax increases and service reductions New York City’s young self-employed workers will have to face.

It is always possible that they will wise up and leave town, the way large corporations did in the 1970s. The Unincorporated Business Tax was enacted in 1966. For younger generations, now increasingly self-employed, every Mayor and every member of the state legislature is Mayor Lindsay.  Perhaps senior citizens whose children are unwilling to care for them, and looking for the most generous benefits for senior citizens with the least asked in exchange in the country, will move in to replace them.