--Special analysis of self-employment trend identifies
 boom spurring growth—

View Economic Notes, Vol XV, No. 1

New York City’s economy grew more rapidly than the nation’s during the second half of 2006, according to Economic Notes, a quarterly publication released today by Comptroller William C. Thompson, Jr.

The report features a special focus on the increased number of New Yorkers who are self-employed, which has fueled the City’s job growth.

Real Gross City Product (GCP), a measure of the overall City economy, grew 2.4 percent in the third quarter of 2006 (3Q06), down from the 2.9 percent rate of the second quarter of 2006 (2Q06) but above the 2.0 percent U.S. rate. Although the City’s growth appears to have exceeded the nation’s in the fourth quarter as well, Thompson cautioned that a slowdown is evident.

“The City’s growth rate has been decelerating since the first quarter of 2006, but a recession does not appear imminent,” Thompson said. “No significant impediments to continued growth have emerged. A tentative housing market should be reassured by steady job and income growth. A banner year for Wall Street provides a boost for the New Year.”  

New York City payroll jobs grew at a seasonally adjusted annualized rate of 1.9 percent or by 16,800 jobs in 3Q06, after adding 14,300 jobs in 2Q06. Preliminary data, however, indicate that the growth in payroll jobs stalled in the fourth quarter. Reflecting the softening payroll figures, City’s personal income tax withholdings grew by just 1.1 percent in the second half of 2006 compared to the second half of the previous year.

Self-Employment surge
The report shows that a growing portion of the City’s workforce is self-employed, and that a boom in the number of non-employer businesses has sustained the City’s job growth. According to the Comptroller’s report, the City had 720,000 self-employed workers in 2004, an increase of 211,000 since 1997.

Meanwhile, wage and salary jobs increased by only 110,000 during the same period, indicating that self-employed workers rose from 12 to 17 percent of the City’s job base.  

“The remarkable growth of self-employment underscores the entrepreneurial energy of this city but it also raises additional concerns about health insurance, retirement benefits and the economic security of our workforce,” Thompson said.
 
The report shows that the number of self-employed in the traditional professions, including law, accounting, and architecture, have been increasing at a steady rate.

Traditional trades, which include plumbers, electricians, painters and other construction contractors, also have seen increases in self-employment rates. Some of the fastest growing areas of self-employment are in the information industries, including computer systems services, traditional and internet publishing, broadcasting, and motion pictures and video services.

The City also has some 39,000 independent writers, artists and performers, a concentration relative to population nearly three-times that of the rest of the nation.

The fastest growth in non-employer businesses, however, has come in personal service occupations, which reflect the changing demographics and lifestyles of the City’s population.

For example, the number of home health care workers rose by 130 percent, to 7,688, between 1997 and 2004. Even more remarkable was the growth in the number of self-employed child care workers, which soared from 11,085 to 49,393. During that same period of time, the number of wage and salary child care workers also increased, from 17,500 to 22,600.

The Comptroller’s study found that men comprise 63 percent of the City’s self-employed workforce. The self-employment rate rises from 3 percent for those under 25 years old to 21 percent for those 65 years old and older. Immigrants are slightly more likely to be self-employed than New Yorkers born in the United States.

The U.S.-born self-employed workforce has attained higher levels of formal education than the U.S.-born wage and salary workforce, reflecting their heavy concentration in the professions, in information industries, and in the arts.

The households of self-employed workers have a median total income slightly greater than the households of wage and salary workers, and an average income significantly greater.

Some of the growth in self-employment, among service workers, tradespersons, and professionals alike may be due to employers finding it more economical to rely on independent contractors than on in-house staff to provide certain services. 

“Clearly, industries and occupations in which self-employment is more common have been growing faster than the overall job base,” Thompson said in his report. “Public policy, however, needs to take account of the growing risks and family vulnerabilities associated with an increasingly independent workforce.”

New York City economic data

Economic Notes also includes the following New York City data:

• New York City payroll jobs grew at a seasonally adjusted annualized rate of 1.9 percent or by 16,800 jobs in 3Q06, after adding 14,300 jobs in 2Q06. The City’s pace of job growth was more than the nation’s payroll employment growth of 1.4 percent. The City’s job gains have been slowing since June and payroll employment probably declined in the fourth quarter.

• Personal income taxes withheld from paychecks rose 1.3 percent in 3Q06 and 1.1 percent in 4Q06, on a year-over-year basis. Estimated tax payments, primarily on interest income, rental income, and capital gains, rose 9.4 percent in the third quarter and 8.3 percent in the fourth quarter, on a year-over-year basis.

• New York City’s unemployment rate fell to 4.1 percent in October, its lowest level in almost 40 years. For the full third quarter, it averaged 5.1 percent, the lowest quarterly average in almost 20 years. However, the labor-force-participation rate fell to 59.9 percent, compared to 60.3 percent in 2Q06. The U.S. unemployment rate remained steady at 4.7 percent.

• The overall Manhattan commercial vacancy rate fell to 7 percent, the lowest since 2001. The average commercial asking rent in Manhattan rose to $45.84 per square foot in the third quarter, led by Midtown, in which asking rents topped $53.00 per square foot.

• New York City’s inflation dropped to 4.3 percent in 3Q06, after spiking to 4.7 percent in 2Q06. Core inflation, whichexcludes food and energy prices, rose to a fourteen year high of 4 percent in 3Q06. The City’s inflation rate surpassed the nation’s in every category except apparel, transportation, and energy.

Five Key Economic Indicators, NYC and U.S., 3Q06 vs. 2Q06

NSA means Not Seasonally Adjusted. SA means Seasonally Adjusted. SAAR means SA Annualized Rate. PIT means Personal Income Tax. Comparisons for “Better” or “Worse” are with the prior quarter.
 

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