Self-employment in the downturn

• Published in: Perspectives on labour and income Vol. 22; no. 2; pp. 5 - 13
• Main Author: LaRochelle-Côté, Sébastien
• Format: Journal Article
• Language: English
• Published: Ottawa Statistics Canada 01.07.2010
• Subjects: Economic conditions; Economic crisis; Employees; Entrepreneurs; Labor force; Recessions; Self employment; Studies; Surveys; Trends; Unemployment; Canada
• ISSN: 0840-8750; 1492-496X

From October 2008 to October 2009, the major losses in paid jobs and increases in self-employed jobs did not take place at the same time. Most of the losses in paid employment took place in the first five months of the downturn, as nearly 400,000 such jobs disappeared (in seasonally adjusted figures). At the same time, self-employment remained stable. In the seven months that followed (between March and October 2009), the number of self-employed individuals increased by more than 100,000, while the number of paid employees declined by much lower margins (85,600 in seasonally adjusted figures). Such figures raise the possibility that the increase in self-employment was mostly due to recently laid-off employees having been 'pushed' into self-employment.7 Because self-employment growth took place in the seven months before October 2009, our self-employment 'candidates' should include paid workers who lost their jobs after October 2008 and were still without a job in March 2009. To obtain a profile of such workers, we identified individuals who had been without a job for five months or less in March 2009, and who had lost their jobs because of economic conditions (e.g., because of business conditions, the company went out of business, or they had been dismissed). According to the LFS, 598,400 individuals met these criteria in March 2009 - the hypothetical pool for the transition to self-employment. Similarly, the number who became self-employed in the seven-month period that followed (between April 2009 and October 2009) was estimated using job tenure information from October 2009, and is defined as the number of individuals who were self-employed in their main job for seven months or less. As of October 2009, 184,600 individuals fit that definition.9 If one were to assume that the re-employment rate for those who were still laid-off in March of 2009 was close to the average for the previous 15 years (87%), it would mean that approximately 520,600 of the 598,400 who were still laidoff in March 2009 found work between April and October 2009. If the transition rate to self-employment were low (as in most years), for instance 5%, then layoffs could have translated into 26,000 new self-employed workers. Conversely, a high transition rate of, say 12% (which would be higher than at any point in time in 14 years of data), would result in more than 78,100 newly self-employed workers, more than one-third of the total. If the rate were somewhere between these two extremes at 8% (which was the transition rate seen in 2006/2007, the most recent year available in SLID), then this would correspond to 41,600 new selfemployed workers between April and October 2009. The implication of these scenarios is that recently laid-off workers could account for a significant minority of the newly self-employed. However, even the highest scenario shows laid-off employees accounting for just over one-third of the newly self-employed.11 This suggests that other factors (potential earnings, access to credit, managerial skills, desire for flexible work hours, other personal characteristics, etc.) might have 'pulled' a significant number of workers into self-employment without the impetus of a layoff.12 It might also mean that other types of economic factors (e.g., weak labour demand, layoff of a spouse) led more people than usual into self-employment.