Side Hustles and Self-Employment Are Booming

For as long as Alexis Michopoulos had been a doctor, she had dreamed of striking out on her own. No matter where she worked in family practice — at a primary-care office, an urgent-care clinic, or a community health center — she was forced to cycle through patients every 15 minutes or so. She couldn’t develop real relationships with her patients — to understand their lives, to find out what truly ailed them. The obvious solution was to start her own practice. “But I came up with all these excuses why I couldn’t,” she told me. “Student loans. I don’t have an office. I felt that if I’m going to open a practice, I need to have it all together. It needs to be 100% ready and perfect.” So she kept putting it off.

Then COVID-19 upended every health center in the US, including the one where Michopoulos worked. Protocols changed every day.

Telehealth

suddenly became a thing. And in the chaos, Michopoulos found a certain kind of relief. “At that point, everybody knew everything was changing,” she told me. “So what better time to figure out something new and make it happen?” In the summer of 2020, she opened her own telehealth practice in Colorado. She allots as much as two hours for some appointments, finally able to give her patients her undivided attention. “Wow — I’ve never had somebody go into that much detail,” they tell her. “I’ve never felt like somebody has listened to me this much.”

For decades, America has been in a protracted entrepreneurial slump. Beyond the startup culture of Silicon Valley, few people like Michopoulos were striking out on their own and going into business for themselves. And when the pandemic hit, economists worried that it would act as a further drag on business creation. When people aren’t starting new businesses, it restricts job growth, depresses wages, and curbs innovation. A low level of self-employment, it turns out, is like low self-esteem — it makes everything worse.

But a few months into the pandemic, something surprising happened: Applications for new businesses spiked to record highs, soaring as much as 89% above 2019 levels. And those numbers don’t even count the scores of Americans who have begun pursuing side hustles while keeping their full-time jobs. On Etsy, sales surged by almost 25% in 2021. Registrations on the freelancing platform Fiverr, meanwhile, have more than doubled over the past two years. 

It’s an economic and cultural revolution every bit as sweeping as the pandemic-fueled boom in remote work, but one that has been far less heralded in the press and popular culture. “The numbers are remarkable,” John Haltiwanger, a professor of economics at the University of Maryland who is an expert on business formation, told me. “People see that there are market opportunities out there, given the new normal we’re headed towards.”

The surge in new businesses and side hustles has already allowed millions of Americans like Michopoulos to work on their own terms, generate extra cash, and diversify their income. It has also contributed to a wave of resignations that has forced employers to extend more benefits and autonomy to full-time employees. And if the business boom continues, it could give America a much-needed jolt of dynamism. “I’m optimistic,” Haltiwanger said. “Not only will job creation be robust, but I think there’s lots of innovation. And when you see lots of innovation going on, that’s going to be good for productivity as well.”

From stagnation to explosion

Most Americans don’t work for themselves, and most businesses have been around for years. But there’s a reason economists like Haltiwanger care so much about entrepreneurship: It’s vital for the long-run health of the economy. New businesses create a disproportionate share of new jobs. They employ people with less experience and fewer credentials who are passed up by larger, more established companies. They drive innovation by trying new things. And they inject more competition into the marketplace, reducing prices for consumers.

Leading up to the pandemic, America’s startup rate — the share of newly formed businesses — had been declining for decades. In 1984, according to one analysis of Census Bureau data, the rate stood at 13.1%. By 2006, it was down to 10.1%, and in 2019 it stood at only 8.2%. That year, in fact, was one of only a handful of times in four decades that the share of failed businesses exceeded those that were created.

The pandemic, surprisingly, awakened the country from its entrepreneurial slumber. In the 2010s, according to the Bureau of Labor Statistics, the share of companies that hired for the first time averaged 3%. But in the latter half of 2020, that figure began to rise. The most recent reading — for the second quarter of 2021 — came in at 4.1%, the highest since the BLS started tracking the data in the early 1990s.

At the same time, the number of Americans applying for an

employer-identification number

with the Internal Revenue Service — the first step many entrepreneurs take to start a new business — skyrocketed. In March of this year, applications for EINs were up by more than 40% compared with the monthly average in 2019. And that statistic most likely misses the boom in side hustlers, who often don’t apply for EINs. All told, there are now at least 3.7% more self-employed Americans than there were before the pandemic.

Why now? 

There’s little about a pandemic that screams business opportunity. So why have so many Americans decided to strike out on their own over the past two years?

Melissa Ottenbreit made the move after her employer instituted pay cuts at the beginning of the pandemic. Swayed by a boyfriend who had an entrepreneurial bent, as well as all the videos about side hustles she was suddenly seeing on TikTok, Ottenbreit started researching options to supplement her diminished salary. “I could be doing so much more with my free time,'” she thought. “I may as well monetize it. I need to do better than just watching

Netflix

.”

At first she tried dropshipping, a much-hyped corner of e-commerce that involves opening an online store and shipping goods directly from manufacturers to customers. But Ottenbreit was soon bleeding money from all the marketing costs, so she pivoted to a side hustle that enabled her to leverage her experience as a hiring manager. In early 2021 she started coaching people on how to improve their résumés, and she now earns as much as $1,500 a month on Fiverr for about 10 hours a week of work, on top of the salary she pulls in from her day job in supply-chain management.

Early in the pandemic, much of the surge in entrepreneurship was born of necessity. With widespread pay cuts and layoffs in the initial months of lockdown, many Americans had no choice but to create their own jobs to stay afloat. In a survey conducted by the payroll platform Gusto, more than half its users who started a business in 2020 attributed their decision to losing their job, their partner losing a job, or worrying about finances.

But the surge in self-employment isn’t just a story of desperation. The Census Bureau divides new business applications between operations that are likely to hire people and those that will probably remain sole proprietorships. During the Great

Recession

, applications by likely employers fell, while likely nonemployer applications rose, suggesting that many founders were just trying to cobble together a source of income for themselves. But during the pandemic, both kinds of applications rose — meaning that many founders envisioned employing not only themselves but others as well. In the Gusto survey, 21% of those who started a business in 2020 attributed their entrepreneurial drive to spotting a pandemic-related opportunity. Last year, in a soon-to-be released survey by Gusto, that number rose to 26%.

So where are Americans eyeing those opportunities? Some of the biggest jumps in new business applications have been among online retailers, personal and professional services, and food services. Those are all sectors that were upended by the country’s radical and rapid shift to remote activities — buying more stuff online, ordering food delivery, working from home. More online customers created a demand for more online sellers and services.

Another major driver of the boom in self-employment and side hustles was the desire for greater autonomy and more meaningful work. Lisa Scotto Pommerening, a longtime sales and business-development executive, spent a lot of time in the early months of the pandemic reexamining her life. The perks of corporate success, she realized — a nice office, flying first-class — no longer appealed to her. What she wanted was to have more impact. So last year, she took on just a single client as a side hustle to her full-time job. It went so well that this year she quit her job to go all in on her consulting business, enabling her to advise a wider range of companies.

According to a survey conducted last summer by the online freelancing platform Upwork, 18% of newly remote professionals said they’d consider freelancing or starting their own business to be able to keep working from home. Side hustles and self-employment aren’t just about the money. They’re about freedom and flexibility. 

Will it last? 

Two years in, the big question now is how long the entrepreneurial boom will last. Will it fizzle out once life returns to something resembling normality? Or will we look back on the pandemic as a turning point for the economy?

At the very least, the boom in self-employment and side hustles proves that it was wrong to give up on American entrepreneurship based on the slump in recent decades. “One of the important lessons to learn from the pandemic is that there is a lot of desire out there for people to go independent,” Adam Ozimek, the chief economist at the Economic Innovation Group, told me. “It’s just a matter of the conditions being right for people to start businesses.”

The revival is also a testament to America’s capacity to adapt to a changing world. In the first three quarters of 2020, new business applications in the US soared 23% from a year earlier, marking the largest increase among advanced economies. The same figure barely rose if at all in France, Australia, and China, according to an analysis by the Peterson Institute for International Economics, and tumbled by double digits in Portugal and Spain. 

And even if the surge in new business creation ends up being temporary, many of the new needs that pandemic entrepreneurs are seeking to meet aren’t going anywhere. In April 2021, Amanda Nguyen launched Pastel, a service that enables residents in the suburbs of San Francisco to order deliveries from popular eateries in the city, such as Tartine Bakery and Butter&. Pastel already employs 20 people, and Nguyen plans to hire more as the business expands to Los Angeles later this year. She’s counting on continuing demand for her service, and she has one powerful force in her favor: the work-from-home revolution that’s dispersed scores of highly paid San Francisco techies to the city’s outskirts. Even when life returns to normal, many of her customers are unlikely to move back to the city. “They’re starting families, they want more space,” she told me. “But they still want Butter&’s cakes. They still have city taste.”

To be sure, most of the new businesses started during the pandemic will fail, as the vast majority of startups always do. To keep the boom going and give new entrepreneurs the best shot at success, policymakers need to step up their game. “We need to do more to support dynamism,” Ozimek said. “For people who have an idea for a startup, how do we encourage them to make the leap so that we can continue to lean against the negative trends of the last few decades?” That would mean doing things like dismantling noncompete agreements that prevent workers from switching jobs, and making it easier for highly skilled foreigners, who launch a disproportionate share of startups, to work in the US.

Supporting the boom is critical, because the handful of businesses that survive and expand will generate millions of jobs in the decades ahead. One or two may even remake the world as we know it. Google, which started out a quarter century ago as a wacky idea from a couple of graduate students, now commands a valuation of nearly $2 trillion. Which pandemic-born business or side hustle will end up becoming the Google of the 2040s?

“All of the data points to this being a much more long-lasting change in the American economy, instead of it being this blip,” Luke Pardue, an economist at Gusto, told me. “It really speaks to the dynamism that’s come back to our economy, even amid the economic pain that this pandemic has caused.” 

Aki Ito is a senior correspondent at Insider.