As is typical for small business owners, when the work slowed, my mind moved to the worst case and I started working backward on how to move forward. But this time, with so much uncertainty in the air, I lingered a little longer than usual. If things don't turn around, I thought, I can always file for unemployment while I figure out the next steps.
Then came the follow-up thought, almost immediately: wait. Can I actually do that?
The answer, after fifteen years of running a small business, is no.
That single classification, owner, earns more political goodwill than almost any other in America. It is also the one that removes a person from the income support system designed to help workers afford their basic needs while they find their footing. Not because they didn't work. Not because they didn't pay taxes. Because they owned.
The backbone of the American economy doesn't qualify for the safety net built to catch the American workers they employ.
Why This Matters
For most small businesses, the owner is the employee. More than 28 million U.S. businesses have no paid employees, according to SBA data.¹ When that business closes, a worker loses their livelihood. The system just doesn't record it that way.
Owners with employees fund the safety net for everyone but themselves. Federal law requires employers to pay unemployment taxes on every employee's wages, the money that pays out claims when workers are laid off. When a small business closes and its employees file, that money is there because the owner put it there. There is no equivalent check for the owner.²
Other countries have solved this. Germany, Belgium, Ireland, Spain, Portugal, Finland, and Sweden all extend some form of unemployment coverage to self-employed workers when their businesses fail.³ Ireland made social insurance for the self-employed mandatory in 1988 and added unemployment coverage specifically in 2019. The absence of any such program in the United States is a policy decision.
There are private alternatives, but none cover the right risk. Disability insurance requires an injury. Business interruption insurance requires a disaster. Self-Employment Assistance helps laid-off employees start businesses, not owners when theirs close.⁴ None of it was designed for the slow bleed of a business losing revenue till closure.
When a sole proprietor closes up, they don't appear in the unemployment count either. The system doesn't just exclude them from support. It excludes them from the record.
Unemployment insurance was designed in 1935 for a specific kind of worker: someone employed by someone else, in an industrial economy, receiving wages that could be taxed and tracked. The American workforce looks substantially different now. Entire new categories of work have emerged that don't fit cleanly into either the employee or the employer box. The framework hasn't moved.
Large companies that fail can access bankruptcy protection, creditor restructuring, and in some cases government intervention. The sole proprietor gets none of that. The risk is total, and it is entirely personal. That's the deal, and most people who take it understand that going in. Which raises a question the system hasn't had to answer yet. If AI and automation continue eliminating layers of traditional employment, and entrepreneurship becomes less a choice and more a necessity for a growing share of the workforce, what does it mean that the infrastructure for the economic engine of America still treats owning a business as proof you don't need help getting back up?
Sources
¹ SBA, Frequently Asked Questions About Small Business, 2024. https://advocacy.sba.gov/wp-content/uploads/2024/12/Frequently-Asked-Questions-About-Small-Business_2024-508.pdf
² DOL Unemployment Insurance Tax Topic. https://oui.doleta.gov/unemploy/uitaxtopic.asp
³ ISSA, "Social Security for the Self-Employed in Europe," 2024. https://www.issa.int/analysis/social-security-self-employed-europe-progress-and-developments
⁴ DOL, Self-Employment Assistance program. https://oui.doleta.gov/unemploy/self.asp