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The Entry and Exit Dynamics of Self-employment in Canada

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  • Lin, Zhengxi
  • Picot, Garnett
  • Yates, Janice
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    Abstract

    This paper i) documents the extent and cyclicality of self-employment entry and exit flows; ii) explores transitions to and from self-employment; and iii) investigates the influence of individual characteristics and labour market experience as well as macroeconomic conditions on the probability of moving into or out of self-employment. The self-employed sector now employs over two and a half million Canadian workers, has expanded on average by over 4% a year so far in this decade and accounted for over three out of every four new jobs the economy has created. There are substantial flows both into and out of self-employment over the last 15 years. Gross flows into and out of self-employment averaged nearly half a million per year between 1982 and 1994, amounting to 42% of the total self-employed population. Regression results reveal no statistical evidence supporting the dominance of the push hypothesis over the pull hypothesis --- the notion that people are increasingly pushed into self-employment by deteriorating economic conditions. This analysis is done both through time-series analysis and the analysis of the determinants of flows into (and out of) self-employment. As in paid employment, younger Canadians are subject to higher turnover in self-employment --- they are not only more likely to enter but also substantially more likely to leave self-employment. Prior paid-employment experience and prior self-employment experience are both found to be associated with a higher likelihood of entering self-employment. The longer one is self-employed, the less likely he/she is going to leave the business. Having a spouse in business (being self-employed) substantially increases the likelihood of the other spouse becoming self-employed --- a self-employed spouse often attracts the other to either join the family business or start their own. We also find evidence that steady family income through paid-employment from one spouse increases the self-employed's (the other spouse's) affordability to continue with the business venture and hence reduces the likelihood of leaving self-employment.

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    Bibliographic Info

    Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 1999134e.

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    Date of creation: 22 Mar 1999
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    Handle: RePEc:stc:stcp3e:1999134e

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    Web page: http://www.statcan.gc.ca
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    Related research

    Keywords: Employment and unemployment; Labour; Labour mobility; turnover and work absences; Occupations; Wages; salaries and other earnings; Work transitions and life stages;

    References

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    1. Carrasco, Raquel, 1999. " Transitions to and from Self-employment in Spain: An Empirical Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(3), pages 315-41, August.
    2. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, American Economic Association, vol. 79(3), pages 519-35, June.
    3. Parker, Simon C, 1996. "A Time Series Model of Self-Employment under Uncertainty," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 63(251), pages 459-75, August.
    4. Holmes, Thomas J & Schmitz, James A, Jr, 1990. "A Theory of Entrepreneurship and Its Application to the Study of Business Transfers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(2), pages 265-94, April.
    5. Taylor, Mark P, 1996. "Earnings, Independence or Unemployment: Why Become Self-Employed?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 253-66, May.
    6. Irwin Bernhardt, 1994. "Comparative Advantage in Self-Employment and Paid Work," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 273-89, May.
    7. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 719-48, August.
    8. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 808-27, August.
    9. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 485-506.
    10. Acs, Zoltán J & Audretsch, David B & Evans, David S, 1994. "Why Does the Self-Employment Rate Vary Across Countries and Over Time?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 871, C.E.P.R. Discussion Papers.
    11. Roy, R. & Gauthier, J., 1997. "Diverging Trends in Self-Employment in Canada," Papers, Gouvernement du Canada - Human Resources Development r-97-13, Gouvernement du Canada - Human Resources Development.
    12. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(3), pages 445-67, June.
    13. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 26-60, January.
    14. Van Praag, C Mirjam & Van Ophem, Hans, 1995. "Determinants of Willingness and Opportunity to Start as an Entrepreneur," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 48(4), pages 513-40.
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    Cited by:
    1. Baldwin, John R. & Chowhan, James, 2003. "The Impact of Self-employment on Labour-productivity Growth: A Canada and United States Comparison," Economic Analysis (EA) Research Paper Series 2003016e, Statistics Canada, Analytical Studies Branch.
    2. John R. Baldwin & Desmond Beckstead & Andrée Girard, 2002. "The Importance of Entry to Canadian Manufacuring, with an Appendix on Measurement Issues," OECD Science, Technology and Industry Working Papers 2002/3, OECD Publishing.
    3. Brown, W. Mark & Vinodrai, Tara & Baldwin, John R., 2001. "Dynamics of the Canadian Manufacturing Sector in Metropolitan and Rural Regions," Analytical Studies Branch Research Paper Series 2001169e, Statistics Canada, Analytical Studies Branch.
    4. Nadja Kamhi & Danny Leung, 2005. "Recent Developments in Self-Employment in Canada," Working Papers, Bank of Canada 05-8, Bank of Canada.
    5. Laporte, Christine & Rivard, Maud-Catherine & Finnie, Ross, 2002. "Setting up Shop: Self-employment Amongst Canadian College and University Graduates," Analytical Studies Branch Research Paper Series 2002183e, Statistics Canada, Analytical Studies Branch.
    6. Vinodrai, Tara, 2001. "A Tale of Three Cities: The Dynamics of Manufacturing in Toronto, Montreal, and Vancouver, 1976-1997," Analytical Studies Branch Research Paper Series 2001177e, Statistics Canada, Analytical Studies Branch.
    7. Baldwin, John R. & Peters, Valerie, 2001. "Training as a Human Resource Strategy: The Response to Staff Shortages and Technological Change," Analytical Studies Branch Research Paper Series 2001154e, Statistics Canada, Analytical Studies Branch.

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