What is the typical demographic of these >$1mm solopreneur earners? Any sense for the ratio that are influencers or less savory pursuits (i.e. OnlyFans)? It's only relevant with regards to the sustainability of these earnings. I suspect that your both in the vast minority with your (well deserved) substack scale. I know a lot of people who have gone "independent" post tradfi careers with consulting, newsletters, etc. and most are very subscale.
I was also surprised at the numbers around high revenue solopreneurs, so I don’t know. I see this trend as more about families supplementing 1 or 2 base income jobs with side businesses such as AirBnB portfolios, selling things on Amazon, Shopify, creating content, and of course OnlyFans. It makes people more diversified in their income and able to negotiate for better wages, which is why we see 4% wage growth, but a low payrolls number. It gives a person/family more bargaining power. They’re not so desperate to take any job because they have 1-2 other sources of income. So i think it’s very sustainable and growing.
As with wage earners, we’re talking a very small number overall ~1% of total solopreneurs. More generally, only about 15% of solopreneurs make more than the median family income ($83k/yr). (I break down income shares and growth by bucket in the piece in Figure 8). But note @Erik’s point that many are additional household income, not sole source. My point is that the upper-income solopreneur businesses are the ones most rapidly growing, hence they are having a significant effect on overall US income growth. Who are these “solopreneurs”? I can’t tell you other than to say that they are surprisingly diverse across all major industry classifications (Figure 6), so this is not just "only fans” or internet influencers. It is a major phenomenon. Anecdotally, I can tell you that many of the successful people I know in my age group (55), across all professions, have gone independent if they can. Original work is here: https://thematicmarkets.substack.com/p/the-employment-situation
Many $1M+ solopreneurs use contractors and services to run their businesses. A lot of their contractors are really just employees that can legally be classified as contractors (adding another layer of solopreneurs to the grid), so it's technically true but somewhat inaccurate to classify them as solopreneurs at all.
Admin, customer service, marketing, writing, editing, coaching, etc all farmed out to independent contractors.
At least this is my personal experience.
Also, as you mentioned... probably a lot of OF and "creators."
Very Interesting discussion - I liked the thoughts on how payroll numbers don't reflect the actual employment picture as well as the shift of sectors in the economy. I struggle with the argument though that a weakness in restaurants etc. is just as shift - I don't think the average consumer instead of eating out decides to invest in industrial products - if more money goes into people's pockets, most of it usually goes into additional consumption.
Thank you. On your question: 1. Restaurants may not be the best example. 2. It’s not to say that the “destruction” part of the Schumpeterian “creative destruction is immaterial, just that it is offset in economic growth terms by the “creative” part. 3. Sticking with the (admittedly bad) restaurant example, think about it this way, with restaurants broadly representing “services”: You have an economy with six employees, five of which are employed in services (call that “restaurants”) and one in manufacturing (that’s roughly the US shares). For the manufacturing sector to grow to employ two people, the restaurant sector has to shrink by one employee (or find new productivity to replace the lost worker). You also need capital to redeploy from building restaurants to building new factories. That means that returns on restaurants have to fall and returns on factories have to rise. Does that make sense?
But I think the thesis for restaurants is that there is a shortage of demand, not labor. Look at Wendy's - they're closing hundreds of restaurants due to declining sales. Having labor and capital shift to manufacturing is not what's making consumer spending weak in the way that you laid out.
Sorry, I didn’t explain clearly. I wasn’t trying to suggest that restaurants might be suffering due to a shortage of labor; rather that for the shift in labor to occur the returns to capital and wages in manufacturing need to rise relative to services. That can happen through rising wages & returns in manufacturing or a fall in wages & returns in services. But if you only have X workers, you can’t have one sector grow without others suffering.
Yes, that was my understanding. But using that line of logic to imply that less people will eat at restaurants only makes sense if the shift in labor/capital to manufacturing causes restaurant prices to increase significantly (likely from wage increases to try to retain workers).
While I'm sure that prices have gone up, it seems a bit farfetched to claim that it's from the manufacturing push when inflation is so widespread. Look at the cost of commodities that are squeezing restaurants for example. I guess the argument can be that reshoring is massively inflationary, which seems to be true, but I don't see how to frame this as a good thing for the economy.
But anyway, the simple explanation is that consumers can't afford to eat out because they're broke. 🤷♂️
Isn't the Central Bank overnight rate about influencing the banks to lend? What if they cut but the banks do not see opportunities to lend? Media keeps reporting that private credit has taken market share from banks, and banks are not lending due to regulatory constraints rather the yield curve steepening.
The banks will likely to start lending to fund the AI build out. The numbers are big and it's where they can help out. Or other infrastructure projects like new semiconductor factories. My view is the banks will start to get their animal spirits back, and the guidance from the top has changed. It's been a long time since the GFC. Now the government wants banks to lend.
In the US about 1/3rd of credit still comes from banks, and most importantly, it is the marginal source of credit to the economy, including non-banks. So, yes, affecting their marginal incentives to create credit has a big effect on the economy. More generally, my point about the capex boom is that there is clearly a lot of opportunities for lending. The marginal product of capital is through the roof, which you can see in earnings numbers, demand for capex, equity prices, et cetera. By cutting rates, the Fed is definitely stoking the fires by getting banks to offer cheap loans when the economy is keen to borrow even at more expensive rates. That leads demand to outpace supply, putting upward pressure on inflation, further cementing higher inflation expectations and making it much harder for them to contain inflation later.
What is the typical demographic of these >$1mm solopreneur earners? Any sense for the ratio that are influencers or less savory pursuits (i.e. OnlyFans)? It's only relevant with regards to the sustainability of these earnings. I suspect that your both in the vast minority with your (well deserved) substack scale. I know a lot of people who have gone "independent" post tradfi careers with consulting, newsletters, etc. and most are very subscale.
I was also surprised at the numbers around high revenue solopreneurs, so I don’t know. I see this trend as more about families supplementing 1 or 2 base income jobs with side businesses such as AirBnB portfolios, selling things on Amazon, Shopify, creating content, and of course OnlyFans. It makes people more diversified in their income and able to negotiate for better wages, which is why we see 4% wage growth, but a low payrolls number. It gives a person/family more bargaining power. They’re not so desperate to take any job because they have 1-2 other sources of income. So i think it’s very sustainable and growing.
As with wage earners, we’re talking a very small number overall ~1% of total solopreneurs. More generally, only about 15% of solopreneurs make more than the median family income ($83k/yr). (I break down income shares and growth by bucket in the piece in Figure 8). But note @Erik’s point that many are additional household income, not sole source. My point is that the upper-income solopreneur businesses are the ones most rapidly growing, hence they are having a significant effect on overall US income growth. Who are these “solopreneurs”? I can’t tell you other than to say that they are surprisingly diverse across all major industry classifications (Figure 6), so this is not just "only fans” or internet influencers. It is a major phenomenon. Anecdotally, I can tell you that many of the successful people I know in my age group (55), across all professions, have gone independent if they can. Original work is here: https://thematicmarkets.substack.com/p/the-employment-situation
Many $1M+ solopreneurs use contractors and services to run their businesses. A lot of their contractors are really just employees that can legally be classified as contractors (adding another layer of solopreneurs to the grid), so it's technically true but somewhat inaccurate to classify them as solopreneurs at all.
Admin, customer service, marketing, writing, editing, coaching, etc all farmed out to independent contractors.
At least this is my personal experience.
Also, as you mentioned... probably a lot of OF and "creators."
Yes. I think this is a part of a structural change from employment to contracting.
Getting laid off and contracting for half of what you were previously paid is the flip side of quitting to charge double as your own business though.
Very Interesting discussion - I liked the thoughts on how payroll numbers don't reflect the actual employment picture as well as the shift of sectors in the economy. I struggle with the argument though that a weakness in restaurants etc. is just as shift - I don't think the average consumer instead of eating out decides to invest in industrial products - if more money goes into people's pockets, most of it usually goes into additional consumption.
I wonder if the restaurant weakness is because they pushed prices too far.
Thank you. On your question: 1. Restaurants may not be the best example. 2. It’s not to say that the “destruction” part of the Schumpeterian “creative destruction is immaterial, just that it is offset in economic growth terms by the “creative” part. 3. Sticking with the (admittedly bad) restaurant example, think about it this way, with restaurants broadly representing “services”: You have an economy with six employees, five of which are employed in services (call that “restaurants”) and one in manufacturing (that’s roughly the US shares). For the manufacturing sector to grow to employ two people, the restaurant sector has to shrink by one employee (or find new productivity to replace the lost worker). You also need capital to redeploy from building restaurants to building new factories. That means that returns on restaurants have to fall and returns on factories have to rise. Does that make sense?
But I think the thesis for restaurants is that there is a shortage of demand, not labor. Look at Wendy's - they're closing hundreds of restaurants due to declining sales. Having labor and capital shift to manufacturing is not what's making consumer spending weak in the way that you laid out.
Sorry, I didn’t explain clearly. I wasn’t trying to suggest that restaurants might be suffering due to a shortage of labor; rather that for the shift in labor to occur the returns to capital and wages in manufacturing need to rise relative to services. That can happen through rising wages & returns in manufacturing or a fall in wages & returns in services. But if you only have X workers, you can’t have one sector grow without others suffering.
Yes, that was my understanding. But using that line of logic to imply that less people will eat at restaurants only makes sense if the shift in labor/capital to manufacturing causes restaurant prices to increase significantly (likely from wage increases to try to retain workers).
While I'm sure that prices have gone up, it seems a bit farfetched to claim that it's from the manufacturing push when inflation is so widespread. Look at the cost of commodities that are squeezing restaurants for example. I guess the argument can be that reshoring is massively inflationary, which seems to be true, but I don't see how to frame this as a good thing for the economy.
But anyway, the simple explanation is that consumers can't afford to eat out because they're broke. 🤷♂️
Isn't the Central Bank overnight rate about influencing the banks to lend? What if they cut but the banks do not see opportunities to lend? Media keeps reporting that private credit has taken market share from banks, and banks are not lending due to regulatory constraints rather the yield curve steepening.
The banks will likely to start lending to fund the AI build out. The numbers are big and it's where they can help out. Or other infrastructure projects like new semiconductor factories. My view is the banks will start to get their animal spirits back, and the guidance from the top has changed. It's been a long time since the GFC. Now the government wants banks to lend.
In the US about 1/3rd of credit still comes from banks, and most importantly, it is the marginal source of credit to the economy, including non-banks. So, yes, affecting their marginal incentives to create credit has a big effect on the economy. More generally, my point about the capex boom is that there is clearly a lot of opportunities for lending. The marginal product of capital is through the roof, which you can see in earnings numbers, demand for capex, equity prices, et cetera. By cutting rates, the Fed is definitely stoking the fires by getting banks to offer cheap loans when the economy is keen to borrow even at more expensive rates. That leads demand to outpace supply, putting upward pressure on inflation, further cementing higher inflation expectations and making it much harder for them to contain inflation later.
Brilliant.
Thank you sir!
Thank you!
Thanks Marvin - I get your point.