Monday, June 3, 2013

Corporate Profits Soar as Proprietors’ Income Stagnates: The Decline of Small Business and what to do about it.

Americans have long seen small businesses as the heart and soul of their economy, but small firms have not fared well in recent years. Corporations, in contrast, seem to be on a roll, with profits and stock prices soaring to record highs. Is small business really in decline, and if so, what should we do about it?

First, some data

One striking indication that small business is falling behind is the divergence between corporate profits and proprietors’ income. The trend is evident in data, shown in the following chart, that were released last week by the Bureau of Economic Analysis.

It is true that the two series in the chart correspond only approximately to the popular distinction between big and small business. Proprietors’ income includes the current income of unincorporated businesses that have the legal forms of proprietorships, partnerships, and tax-exempt cooperatives. It does not perfectly match up with small firm size because some small firms are incorporated and some proprietorships, partnerships, and cooperatives are large. Also, proprietors’ income is not, in an economic sense, a pure measure of the profits of small businesses, since it includes the imputed income of small business owners who live off the net proceeds of their enterprises without paying themselves a salary or interest on funds they have loaned to their firms. >>>Read more

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