Study: Sole Proprietors Undercounted

Sole proprietors may miss out on government-sponsored economic-development opportunities because they are severely undercounted in employment and economic studies, according to a new report.

The report, commissioned by the Enterprise Center at Salem State College in Salem, Mass., found that in 2004, there were close to 425,000 sole proprietorships in Massachusetts, accounting for 17 percent of all jobs in the state.

Click here to visit FOXBusiness.com's Small Business Center.

"I don't think any of us had any idea how large this segment really is," Christine Sullivan, the center's executive director, said in a statement.

Although the number of sole proprietors is tracked nationally — there are roughly 19 million firms without employees, representing the vast majority of all small businesses, according to the Small Business Administration — most states do not track sole proprietorships on a local or industry-specific level. That's problematic, Sullivan said, because employment figures inform state policy makers how to best design programs and services to support businesses growth.

For the Salem State study, the Massachusetts sole-proprietor population was estimated by subtracting the number of employees that have unemployment insurance — in other words, those that are employed by someone else — from the total number of employees.

Sullivan explained that decisions about how to allocate resources for economic development have traditionally been based on information about the workforce provided by the Massachusetts Division of Employment and Training. However, since Massachusetts employment data does not currently include sole proprietors, they are often overlooked and economic-development resources may not be made available to them.

"We tend to focus on attracting companies with large numbers of jobs while ignoring the job-creation potential of small firms," Sullivan said. "Job-development and retention programs tend to be designed for and made available to mid-sized and larger businesses."

Despite under-representation in economic development initiatives, sole proprietorships are thriving in Massachusetts. According to the report, 30.2 percent of the net additional jobs created in the state between 1994 and 2004 were proprietorships with no wage and salary employees.

Sullivan urged policy makers to pay attention to the needs of sole proprietors. "We have an overlooked and unappreciated resource," she said. "It is the heart of our economic future."

Click here to visit FOXBusiness.com's Small Business Center.