The rise of nonemployer businesses in the United States: an analysis by geography

Abstract During the first two decades of the 2000s, the number of nonemployer businesses grew remarkably, far outpacing the growth in the number of employer businesses. We analyze the factors that may be driving the growth of nonemployer businesses per capita at the county level. We pay particular attention to geography, namely the rural and urban contexts and potential spatial spillovers between counties. We find that nonemployer growth is highest in places with large non-White populations as well as low incomes and home values, suggesting that nonemployer business ownership may be a form of necessity entrepreneurship that is more common in low-wealth areas. Yet, nonemployer growth is also higher in places with more small business lending, indicating the important role of capital even for very small businesses. Using a panel Spatial Durbin Model and Geographically Weighted Regression (GWR) to assess the importance of spatial spillovers, we find that the main results are largely robust to spatial models, but the GWR model highlights important local insights.