Study: Self-employment in the downturn

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Self-employment rose substantially during the recent economic downturn, while paid employment declined. Layoffs among paid workers might account for some of the increase in self-employment, but not all of it.

Between October 2008 and October 2009, self-employment in Canada increased by more than 100,000, or 4.3%. At the same time, paid employment fell by 480,000, or 3.3%.

The decrease in paid employment largely predated the increase in self-employment. This raises the possibility that a large portion of the newly self-employed could have been paid employees who lost their jobs in the first few months of the downturn.

However, this study found several reasons why this was unlikely to have been the case.

First, the characteristics of those who lost their jobs bore little resemblance to those who became self-employed after the first five months of the downturn. Five months after the beginning of the downturn, 28% of recently laid-off paid employees were employed by manufacturing industries. In contrast, many of those who became self-employed in the ensuing months were in services.

Second, although most laid-off employees become re-employed in a relatively short time span, only a small proportion become self-employed in the months that follow the loss of a paid job. Even if the transition rate of recently laid-off workers reached the maximum observed in the previous 14 years, laid-off workers would account for just over one-third of those who became self-employed over the period.

The study also pointed out that the growth in self-employment between October 2008 and October 2009 was not evenly distributed across demographic groups. For example, women accounted for the majority (58%) of the increase over the period even though men comprised the vast majority of the self-employed at the onset of the downturn.

Furthermore, the increase was also entirely concentrated among older workers, especially those at least 55 years of age. Despite this increase, the self-employment rate among older workers remained lower than in the late 1990s.

Changes also occurred within self-employment categories over the period as the increase was entirely among "own account" workers, that is, self-employed without paid help. In contrast, the number of "entrepreneurs," those with paid help, remained relatively stable.

Net changes in self-employment also concealed a substantial degree of entries and exits over the period. Between October 2008 and October 2009, 285,000 individuals entered self-employment while 170,000 exited.

Note: The article "Self-employment in the downturn" uses monthly data from the Labour Force Survey to examine net changes in self-employment levels between October 2008 and October 2009. Self-employed individuals are defined as those working for themselves or working without pay for a family business, as opposed to paid workers, who are working for "others." The vast majority of self-employed workers are incorporated and unincorporated individuals with or without paid help.

Definitions, data sources and methods: survey numbers, including related surveys, 3701 and 3889.

The article "Self-employment in the downturn" is now available in the March 2010 online edition of Perspectives on Labour and Income, Vol. 11, no. 3 (75-001-X, free), from the Key resource module or website under Publications.

For more information, or to enquire about the concepts, methods or data quality of this article, contact Sébastien LaRochelle-Côté (613-951-0803; sebastien.larochelle-cote@statcan.gc.ca), Labour and Household Surveys Analysis Division.