Rise of Self-Employment: 5 Economic Warning Signs
The rise of self-employment is changing the American labor market, creating new opportunities for independent workers while raising questions about income security, job quality and long-term economic growth. A growing number of people are working for themselves, but the trend does not necessarily mean more Americans are becoming financially independent or building successful businesses.
A new analysis published by the Federal Reserve Bank of Minneapolis on October 16, 2026, examines this complicated shift. Drawing on U.S. Census Bureau statistics and research from economists, the report finds that self-employment includes everything from profitable construction businesses to delivery drivers earning relatively modest amounts through gig platforms.
The distinction matters because the economic contribution of a self-employed worker depends on more than the number of businesses being created. Income, stability, access to benefits and the ability to expand operations all influence whether independent work improves living standards.
In the Minneapolis Fed’s Ninth Federal Reserve District, which includes Minnesota, Montana, North Dakota, South Dakota and parts of surrounding states, self-employment has become increasingly common. However, the expansion has been particularly pronounced among businesses without employees, many of which operate as side jobs or small independent contracting arrangements.
The findings suggest that the rise of self-employment can represent both entrepreneurial opportunity and economic vulnerability. Understanding the difference is essential to assessing the health of the labor market.
1. The Rise of Self-Employment Is Accelerating
Self-employment has expanded across the United States, with the growth of businesses without employees outpacing the growth of businesses that hire workers for years.
According to the Minneapolis Fed, the Ninth District had approximately 781,000 nonemployer businesses in 2023. These businesses are generally defined through government tax statistics and typically include self-employed individuals who operate without paid employees.
The growth rate has accelerated over time. Between 2015 and 2019, the number of nonemployer businesses relative to the district’s population increased by an average of 0.8% annually. From 2019 to 2023, that rate nearly doubled to 1.5% a year.
Nationally, the corresponding annual growth rates were 2.1% before the pandemic and 2.3% from 2019 through 2023.
More recent applications for employer identification numbers filed with the Internal Revenue Service suggest that interest in starting businesses without employees remained strong in 2026.
However, business registrations do not necessarily indicate that a new company will become profitable, employ additional workers or provide its owner with a sustainable income.
A person can register a business to work as a contractor, earn money through an online platform or pursue a part-time activity without intending to build a larger company.
This distinction is central to understanding the trend. A growing number of business registrations may reflect entrepreneurial ambition, but it can also reflect changes in how people find work and supplement their earnings.
2. Not All Self-Employed Workers Earn the Same Income
One of the clearest findings in the Minneapolis Fed analysis is the substantial difference between industries.
In the Kalispell, Montana, area, residential construction has experienced a significant increase in independent contractors. Housing demand and opportunities to earn money through contract work have encouraged construction workers to operate their own businesses.
U.S. Census Bureau data cited in the report show that nonemployer businesses in home building generated average annual receipts of approximately $134,000 in 2023.
However, receipts are not the same as profit or take-home pay. Independent contractors must cover operating expenses, equipment, transportation, taxes and other costs before determining how much money they actually earn.
The picture is different for workers in gig-related industries.
Nonemployer businesses in sectors associated with gig work generated average annual receipts of approximately $33,000 in the district in 2023. Across the broader category of gig-related businesses, the average was approximately $27,000.
These figures highlight the considerable differences between independent contractors with established customer relationships and workers who rely on delivery platforms or other short-term opportunities.
For some construction professionals, self-employment provides the opportunity to earn substantially more than traditional employment. For many gig workers, however, it may offer only a limited income stream.
The economic implications are therefore mixed. The expansion of independent work can support entrepreneurship and provide flexibility, but it does not guarantee that workers will achieve financial stability.
3. The Rise of Self-Employment May Reflect Labor Market Pressure
Another important question is why people choose to work for themselves.
Some individuals start businesses because they recognize an opportunity, want greater control over their schedules or hope to increase their earnings. Others turn to independent work because traditional employment is difficult to find or does not provide enough income.
The Minneapolis Fed report identifies several forces behind the trend, including technology, changing labor demand and the availability of online platforms that connect workers with customers.
Digital platforms have made it easier for individuals to find delivery assignments, transportation work and other short-term opportunities. At the same time, economic changes may encourage workers to seek additional sources of income when regular employment does not meet their needs.
Research discussed in the report also links the growth of nonemployer businesses to areas experiencing higher unemployment, underemployment and poverty.
These patterns do not mean that every self-employed worker is struggling. Instead, they suggest that the same headline statistic can represent very different economic circumstances.
An experienced contractor who chooses to operate independently may be pursuing a profitable business opportunity. A delivery driver who takes extra shifts to pay household bills may be responding to financial pressure.
Economists therefore distinguish between self-employment driven by opportunity and self-employment driven by necessity.
That distinction matters when evaluating economic performance. If more people are starting sustainable businesses, the trend may signal stronger entrepreneurial activity. If many are turning to gig work because conventional jobs do not provide adequate earnings, the increase may reveal weaknesses in the labor market.
4. Unstable Income and Missing Benefits Create Risks
Working independently can provide flexibility, but it also transfers responsibilities that employers traditionally manage to individual workers.
Self-employed people generally must arrange their own retirement savings, manage taxes and cover expenses associated with their work. Depending on their circumstances, they may also need to obtain health insurance and make provisions for periods when they cannot work.
Independent contractors can face particular challenges when their earnings fluctuate from month to month.
A delivery driver may earn different amounts depending on demand, available assignments and operating costs. A construction contractor may experience periods of strong demand followed by slower seasons.
Workers who lack savings or long-term customer agreements can be especially vulnerable when economic conditions deteriorate.
The Minneapolis Fed report cites research showing that independent workers with fewer resources and less formal relationships with customers tend to earn less and experience greater income instability.
University of Wisconsin–Madison economist Tessa Conroy, whose research examines entrepreneurship and community development, warns that these arrangements can leave workers exposed to economic fluctuations.
The absence of employer-provided benefits is another concern.
Independent contractors may receive payments directly without the benefits associated with traditional employment. Depending on the applicable employment arrangement, they may lack employer-sponsored retirement contributions, paid leave, workers’ compensation or unemployment insurance.
These costs can be easy to overlook when comparing contract earnings with an employee’s wages.
A contractor receiving a higher payment per assignment may still face lower overall financial security after accounting for expenses, unpaid time off and benefits.
For workers who rely on physical labor, the risks can extend into the future. A construction professional may earn a strong income while working long hours but face difficulties later if an injury or declining physical capacity prevents them from continuing.
The report highlights the importance of planning for retirement and unexpected interruptions to income.
5. The Rise of Self-Employment Does Not Always Produce Business Growth
A further concern is whether independent businesses eventually expand into companies that employ other people.
Business formation is often viewed as a potential source of job creation. However, a large number of nonemployer businesses do not necessarily translate into more employers or stronger long-term economic growth.
The Minneapolis Fed report examines incorporation as one indicator of entrepreneurial development.
Incorporating a business involves additional administrative, financial and legal responsibilities. For some owners, those costs may be worthwhile when they expect to expand operations, hire workers or establish more formal business relationships.
The report notes that incorporated nonemployer businesses are more likely to become employers than businesses operating as sole proprietorships or partnerships.
Income differences are also substantial.
In 2023, the average sole proprietor in Minnesota, Montana, North Dakota and South Dakota reported annual receipts of less than $47,000. By comparison, the average corporation reported receipts of approximately $158,000.
These figures describe business receipts rather than personal income, but they illustrate the differences between types of independent businesses.
The district has also experienced a decline in the number of incorporated nonemployer businesses relative to its population, while unincorporated businesses have continued to increase.
That pattern raises questions about the long-term growth potential of the region’s expanding self-employment sector.
If more people establish small businesses but relatively few build companies capable of hiring employees, the economy may gain additional independent workers without receiving the same job-creation benefits associated with business expansion.
However, incorporation is not a perfect measure of business success. Some profitable businesses have no need to hire employees, and legal structures differ according to industry and owner preferences.
The broader lesson is that the number of self-employed workers should be considered alongside measures of earnings, productivity, business survival and employment creation.
What the Trend Means for the U.S. Economy
The expanding self-employment sector presents policymakers with a challenge: encouraging entrepreneurship while ensuring that workers have access to sustainable opportunities.
Independent businesses can contribute to economic activity by supplying services, meeting specialized demand and creating opportunities for people who prefer flexible working arrangements.
In construction, for example, independent contractors can help meet demand for housing and renovation projects. In other industries, self-employed professionals can serve customers who need specialized skills or temporary services.
However, a growing number of independent workers does not automatically indicate stronger household finances.
If self-employment increasingly becomes a substitute for stable jobs rather than a pathway to business growth, its economic benefits may be more limited.
Income quality matters as much as the number of people working.
Policymakers and researchers therefore need to examine how much independent workers earn after expenses, how regularly they receive income and whether they can build savings for retirement or unexpected costs.
The data also suggest that access to capital and stable customer relationships can make a meaningful difference.
Entrepreneurs with financial resources and long-term contracts may have more opportunities to invest in equipment, improve productivity and expand their businesses. Workers who depend on unpredictable assignments may have fewer options for growth.
Improving access to training, financing and business development resources could help some independent workers build more sustainable operations. At the same time, discussions about benefits and worker protections may become increasingly important as employment arrangements continue to change.
The objective is not necessarily to discourage self-employment. Rather, it is to ensure that the growth of independent work translates into meaningful economic opportunity.
Conclusion: Is Rising Self-Employment a Positive Sign?
The rise of self-employment is neither entirely positive nor inherently negative. Its significance depends on who is becoming self-employed, why they are doing so and whether their businesses provide sustainable earnings.
The Minneapolis Fed’s analysis reveals a labor market in which some independent contractors are benefiting from strong demand, while others rely on gig work that offers limited income and few protections.
The growth of nonemployer businesses can demonstrate entrepreneurial activity, but it can also reflect financial pressure, unstable employment and a lack of better alternatives.
For policymakers, the challenge is to distinguish between businesses with genuine growth potential and independent work that leaves people financially vulnerable.
For workers, the findings reinforce the importance of considering expenses, benefits, retirement savings and income stability when evaluating the advantages of working independently.
Ultimately, the strength of an economy cannot be measured simply by counting how many people start businesses. A more complete assessment must consider whether those businesses generate adequate income, create lasting opportunities and help workers build financial security.
As self-employment continues to evolve, those measures will be essential to determining whether the trend represents a stronger economy or a changing labor market with significant unresolved challenges.
