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- Is there a generational decline in self-employment from immigrant parents to their children?
- Data and methods
- Discussion and conclusion
Self-employment is often considered to be an important aspect of the economic integration of immigrants in their host country. Some immigrants engage in self-employment in order to overcome limited employment opportunities and low returns to their foreign-acquired skills in the paid labour market (Fairlie and Meyer 1996), while others enter self-employment as a means to implement their business ideas, gain flexibility, and seek higher earnings (Hou and Wang 2011). Some immigrants come to Canada specifically to be self-employed and have been selected for their entrepreneurial attributes (Schuetze 2010). Self-employed immigrants provide employment for themselves and are often the employers of other immigrants, often those who are less well-educated and less proficient in the host-country language (Hou 2009; Yuengert 1995). Whether by choice or necessity, immigrants tend to have higher self-employment rates than the domestic-born, with this evident in Canada (Li 1997), the United States (Lofstrom 2002; Borjas 1986), and some European countries (Andersson and Wadensjö 2004; Hammarstedt 2001).
The importance of immigrants as a source of entrepreneurial capital is reflected in Canadian immigration policies. Implemented in 1978, the Business Immigration Program is designed to attract entrepreneurs and investment funds as a means of facilitating economic activity (Froschauer 2001; Schuetze 2005). In the 1990s, about 6% to 10% of immigrants landing in Canada each year were admitted under the program (Schuetze 2010), while in the 2000s the share was around 5% (Citizenship and Immigration Canada (CIC) 2010). 1 While an increasing proportion of economically active immigrants are self-employed, the economic outcomes of self-employed immigrants have not been explored as extensively as those of immigrants employed as paid workers (Frenette 2004).
Past studies of immigrants and self-employment have focused on first-generation immigrants. In contrast, little is known about the self-employment activities of second-generation immigrants in Canada (i.e., the Canadian-born children of immigrants). This is because most studies of this group have focused on their educational attainment and their wages and salaries (Georgarakos and Tatsiramos 2009; Gold et al. 2006). It is worthwhile addressing this issue to better understand the role that self-employment plays in the long-term economic integration of immigrants and their children.
Using the micro-data from the 1981 and 2006 censuses of population and employing a generation-cohort method of analysis, this paper examines the levels of self-employment among immigrants and the children of immigrants, including both the Canadian-born children of immigrant parents (i.e., the second generation) and the foreign-born children of immigrant parents (i.e., the 1.5 generation). The differences between Canadian-born parents and their children (the third-and-higher generations) are also examined in order to provide a benchmark of broader trends in self-employment over the 25-year reference period. The analysis focuses on three questions: (1) Are children of immigrants likelier or less likely than immigrant parents to be self-employed?; (2) Are children of immigrants likelier or less likely than children of Canadian-born parents (i.e., the third-and-higher generations) to be self-employed?; (3) Is the generational change in the self-employment rate from immigrant parents to the children of immigrants different from the generational change from Canadian-born parents to their children?
While this paper focuses on the difference/similarity in the self-employment rate between generations, a companion paper examines whether some important correlates of self-employment have the same effect by generational status (Abada et al. 2011).
The remainder of the paper is divided into four sections. In Section 2, the literature on generational changes in self-employment from immigrant parents to their children is reviewed. In Section 3, the data source and methods used in the paper are discussed. Results are presented in Section 4. Conclusions follow in Section 5.
In addition to the analysis presented in the main body of the paper, descriptive information on the characteristics of parents and children engaged in self-employment and paid employment is provided in the Appendix. This includes comparative information on education levels, Canadian work experience, foreign work experience, and average annual earnings that is not readily available elsewhere.
2 Is there a generational decline in self-employment from immigrantparents to their children?
The first question addressed by this study pertains to the debate in the literature regarding the extent to which children of immigrants share their parents' relatively high propensity to be self-employed. It is not clear a priori whether children of immigrants are likelier or less likely than their parents to be self-employed.
Many self-employed immigrant parents start businesses not necessarily for their children to take over but, rather, to provide the financial resources for the advanced education of their children, thus opening up a wider range of labour market opportunities for them (Sanders and Nee 1996). In the American literature, for example, it has been found that Cuban exiles who arrived in Miami in the 1960s and 1970s engaged disproportionately in self-employment relative to non-Hispanic White Americans. The flourishing ethnic entrepreneurship allowed them to establish an economically viable niche in American society. However, the self-employment rate among their children declined by one-half. Many second-generation Cubans entered professional careers in the paid labour market since the accumulated resources of their parents' entrepreneurship afforded them the opportunity to obtain advanced degrees (Portes and Shafer 2007). Kasinitz et al. (2008, p. 181) suggested that education and professional credentials may be a preferred route to economic success among the second generation. For these reasons, self-employment may be less prevalent among children of immigrants than among their parents. Other studies also point to a decline in self-employment from the first generation to subsequent generations (Goldsheider and Kobrin 1980), and concerns have been raised to the effect that older small-business owners in Canada, particularly immigrants, have trouble finding successors to take over their businesses (e.g., McLean 2009).
A competing hypothesis suggests an increase in self-employment from immigrant parents to their children. Compared with their parents, the children of immigrants are likely to be more proficient in the official languages of the host country, to have higher levels of education, and to have been educated in host-country educational institutions. These assets may provide them with the skills and information needed to start and operate a business (Sanders and Nee 1996; Kloosterman et al. 1999), potentially leading to higher rates of self-employment among children of immigrants than among their parents.
Regarding the second question—that is, whether the children of immigrants are likelier or less likely than the children of Canadian-born parents to be self-employed—competing hypotheses can be developed as well. Exposure to an entrepreneurial lifestyle while growing up, either by living with a business owner or by working in a family business, may increase the likelihood that an individual will become self-employed later in life (Aldrich and Kim 2007). Some studies show that having a self-employed father increases the probability of self-employment among the children of immigrants and the children of non-immigrants alike, although many self-employed children of immigrants are not in the same business line as their fathers (Andersson and Hammarstedt 2010; Fairlie 1999; Hout and Rosen 2000). In a study of business owners in Vancouver, for example, more than half of the sample reported that their parents had been self-employed at some point (Aldrich et al. 1998). The same pattern is observed in other settings, including Germany and the United States (Constant and Zimmerman 2006; Dunn and Holtz-Eakin 2000). Since immigrants have a higher rate of self-employment than Canadian-born, the children of immigrants may in turn have a higher rate than the children of Canadian-born parents. Such an expectation assumes that the succession rates of self-employment from parents to children are the same for both groups.
Conversely, if a main reason that immigrants have a higher self-employment rate than non-immigrants is that the former experience more difficulties in the paid labour market, it would be expected that the children of immigrants and the children of non-immigrants would have similar rates. On average, the children of immigrants in Canada and the U.S. have labour market outcomes similar to or better than those of the third-and-higher generations; this reflects higher levels of educational attainment among the former (Picot and Hou 2010). Thus, to the extent that self-employment is a response to obstacles to paid employment, this "push" factor should be either comparable among the children of immigrants and the children of non-immigrants or weaker among the former.
The third question set out in this paper concerns the possibility that the generational change in self-employment rates from immigrant parents to their children is not unique to this group but, rather, reflects a broader labour market trend. In Canada, the share of the employed workforce consisting of self-employed workers increased from the late 1970s to the 1990s, before stabilizing in the 2000s (LaRochelle-Côté 2010; Lin et al. 1999). Several factors may be related to this trend, including the aging of the labour force (Acs et al. 1994; Kamhi and Leung 2005; Uppal 2011), technological change and shifts in occupational and industrial structures (Gauthier and Roy 1997; Kamhi and Leung 2005; Statistics Canada 1997), and government policy (Lin et al. 1999; Schuetze 2002a). It is not the purpose of this paper to systematically evaluate the relative importance of these potential factors in accounting for the overall rise in self-employment. Nevertheless, it is reasonable to expect that factors affecting the overall trend would have a similar effect among immigrant and Canadian-born families. Therefore, it is important to examine whether changes in the self-employment rate from immigrant parents to their children is a unique "second-generation effect" or simply a "time effect" that also applies to Canadian-born parents and their children.
3 Data and methods
The data used in this study are drawn from the 20% sample of the 1981 Canadian Census of Population and from the 20% sample of the 2006 Canadian Census of Population. These datasets are the only Canadian sources that allow comparisons of self-employment rates by generation over time. Self-employed workers are defined as individuals who identify themselves as mainly self-employed in their own unincorporated or incorporated business. 2 This is a common approach followed in studies based on Census data (e.g.: Fairlie and Meyer 2003; Portes and Zhou 1996; van Tubergen 2005; Yuengert 1995). For the purpose of robustness, trends in self-employment rates are also examined by using alternative definitions (Appendix subsection 6.3). As in most previous studies in this area, institutional residents, unpaid workers in family businesses, and individuals reporting negative self-employment income are excluded, as are workers in agricultural industries. 3
The focus of this paper is on generational differences in self-employment rates. However, it is not possible to directly match children with their actual parents on the basis of multi-year census data. Rather, the generational linkage is made through matching a synthetic cohort of parents with a synthetic cohort of children. Such a linkage uses information on the following: (i) adults' age, adults' immigration status, and the presence/age of children in the 1981 Census; and (ii) adults' age, adults' immigration status, and the immigration status of parents in the 2006 Census.
Three groups of adults from the 1981 Census are selected to match three groups of adults from the 2006 Census. First, from the 1981 Census, adult immigrants who were aged 25 to 44 and had foreign-born children aged 0 to 18 are selected. 4 These are the parents of immigrant children who landed in Canada before age 19 (referred to in this paper as the 1.5 generation). These immigrant children were aged 25 to 43 in 2006, and are identified in that year on the basis of their age, their immigration status, and the immigration status of their parents reported at that time.
Second, immigrants who were aged 25 to 44 and had Canadian-born children aged 0 to 18 are selected from the 1981 Census. These are the parents of second-generation immigrants (i.e., children born in Canada to immigrant parents). These second-generation immigrants are identified in 2006 on the basis of their age (i.e., 25 to 43), their immigration status (i.e., born in Canada), and the immigration status of their parents. Finally, the Canadian-born who were aged 25 to 44 and had Canadian-born children aged 0 to 18 are identified from the 1981 Census. These are the parents of the third-and-higher generations (i.e., children born in Canada to Canadian-born parents). Again, the third-and-higher generations are identified in 2006 on the basis of their age (again, 25 to 43) and the immigration status of their parents. Canadian-born children with one foreign-born parent and one domestic-born parent are excluded from the study.
This approach of matching a synthetic cohort of parents with their prospective children is consistent with the method used by Park and Myers (2010) and Smith (2003). This approach facilitates inter-generational comparisons of the self-employment activities of parents and those of their prospective children when they were in the same age range. 5 Given this approach, the analysis focuses largely on individuals aged 25 to 44, although Table 1 highlights broad trends in self-employment among individuals aged 20 to 64.
4.1 Descriptive information on self-employment rates
Any generational differences in self-employment from immigrant parents to their children have to be interpreted in the context of the overall trends in self-employment in Canada. For this reason, it is important to briefly discuss trends in self-employment rates by immigration status over the 1981-to-2006 period (in Appendix subsection 6.2, changes in the selected characteristics of self-employment are also discussed). From the descriptive statistics in Table 1, several summary points can be drawn.
First, self-employment rates increased over the 1981-to-2001 period among both Canadian-born and immigrants, then decreased slightly among both groups from 2001 to 2006. This finding is consistent with the trend observed in the Labour Force Survey (LFS) (LaRochelle-Côté 2010). 6 Among Canadian-born male workers aged 20 to 64, the self-employment rate increased from 9.4% to 11.5% between 1981 and 2006, while among immigrant men it increased from 13.1% to 16.8%. The increase in the self-employment rate was larger among women, rising from 3.4% to 6.9% among the Canadian-born and from 5.4% to 9.4% among immigrants. Nonetheless, women were less likely than men to be self-employed.
Further analysis shows that the rise in the self-employment rate among men from 1981 to 2006 illustrated in Table 1 can be attributed to two factors. First, the share of the employed labour force consisting of older workers increased. 7 Since older workers have higher self-employment rates than do younger workers, this exerted upward pressure on the overall self-employment rate. Second, the self-employment rate itself increased among older workers, rising from 12.7% to 16.1% among Canadian-born male workers aged 45 to 64 and from 8.1% to 8.7% among Canadian-born male workers aged 20 to 44. In sum, the increasing share of older male workers and the rising self-employment rate among older workers drove up the overall self-employment rates among men in Canada. In contrast, the self-employment rate increased among women of all ages.
A second summary point to be drawn from Table 1 is that immigrants have a higher self-employment rate than the Canadian-born. This holds for both men and women over the entire period from 1981 to 2006. However, recent immigrants—those who have been in Canada for five years or less—have tended to have a lower self-employment rate than the Canadian-born and than long-term immigrants. The extent to which this is due to differences in age, years of Canadian work experience, or other factors is addressed in a companion research paper (Abada et al. 2011).
While the self-employed rate among men aged 20 to 64 increased among both immigrants and the Canadian-born from 1981 to 2006, this upward trend was not observed when fathers in 1981 were compared with sons in 2006, at which times each group was aged 25 to 44 (Table 2). Indeed, the self-employment rate decreased by 1.7 percentage points between Canadian-born fathers and third-and-higher-generation sons and by 2 percentage points between immigrant fathers and second-generation sons (Table 2).
It was only among immigrant fathers and 1.5-generation sons that the rate increased—by 1.2 percentage points—over the 1981-to-2006 period. This increase was due primarily to the low self-employment rate among immigrant parents of the 1.5 generation as compared to the self-employment rate among immigrant parents of the second generation (a difference of 3 percentage points among men). Compared with immigrant fathers of the second generation, immigrant parents of the 1.5 generation are found to have landed in Canada at older ages and to have had fewer years of Canadian work experience (Table 5). Thus, less familiarity with the Canadian labour market, fewer established social networks, and more financial constraints may be the reasons for their lower self-employment rate relative to immigrant fathers of the second generation. Additional analysis shows that years of foreign work experience and years of Canadian work experience account for about two-thirds of the difference in self-employment rates between immigrant fathers of the 1.5 generation and immigrant fathers of the second generation (table available upon request).
Among women, daughters in all three groups have higher self-employment rates than their mothers. This intergenerational increase tends to be larger from Canadian-born mothers to their daughters than from immigrants mothers to their daughters. While Canadian-born mothers had a lower self-employment rate than immigrant mothers in 1981, there were only modest differences in the rates among their daughters in 2006.
4.2 Multivariate results on self-employment rates
These observed changes in the self-employment rate over generations may be related to changes in socio-demographic composition affecting both immigrants and the Canadian-born. The choice of self-employment is often associated with socio-demographic factors, including work experience, education, marital status, and the presence of children (e.g.: Apitzsch 2005; Borjas 1986; Li 2001). Some of these factors have changed significantly over the last several decades. On the basis of multivariate model estimates, this section examines the generational changes in self-employment rates observed when changes in socio-demographic factors are taken into account.
Since the choice of self-employment over paid-employment is influenced by individuals' socio-demographic characteristics, a probit model is constructed in order to control for parent-children differences in these factors. This model is estimated with pooled data of three groups of parents and the corresponding three groups of children, as follows:
PA2, PA15, G3, G2, and G15 are dummy variables representing, respectively, immigrant parents of the second generation, immigrant parents of the 1.5 generation, the third-and-higher generations, the second generation, and the 1.5 generation. The common reference group for these dummy variables is Canadian-born parents (as observed in the 1981 Census).
X i represents socio-demographic characteristics, including education levels, years of potential work experience, marital status, mother tongue, number of children in the family, housing tenure, ethnic groups, and geographic region. 8 The literature shows that these factors tend to be significantly associated with the likelihood of self-employment (e.g.: Blanchflower 2000; Li 2001). Other factors that are potentially important with respect to the choosing of self-employment, such as motivation, entrepreneurial spirit, access to financial resources, and social networks, are not included in the Census. Separate probit models are run for men and women—one based on a pooled sample of fathers and sons, another based on a pooled sample of mothers and daughters.
To determine whether the children of immigrants are likelier or less likely than their parents to be self-employed, the paper assesses whether the differences β4–β1 and β5–β2 are statistically significant. The first term (β4–β1) is the generational change in the probability of being self-employed (when expressed as marginal effects) between members of the second generation and their parents, while the second term (β5–β2) is the generational change in the probability of being self-employed between members of the 1.5 generation and their parents.
To determine whether the children of immigrants are likelier or less likely than the children of Canadian-born parents to be self-employed, the paper assesses whether the differences of (β4–β3) and β5–β3 are statistically significant. The term β4–β3 is the difference in the probability of being self-employed (when expressed as marginal effects) between the second generation and the third-and-higher generations, while the term β5–β3 is the difference in the probability of being self-employed between the 1.5 generation and the third-and-higher generations.
To determine whether the generational change in the self-employment rate from immigrant parents to their children is different from the change between Canadian-born parents and their children, the paper assesses whether the differences β4–β1–β3 and β5–β2–β3 are statistically significant. β3 is the generational change in the probability of being self-employed from the Canadian-born parents to the third-and-higher generations. Thus, β4–β1–β3 is the difference in the generational change from immigrant parents of the second generation to their children and the generational change from Canadian-born parents to the third-and-higher generations. Similarly, β5–β2–β3 is the difference in the generational change from immigrant parents of the 1.5 generation to their children and the generational change from Canadian-born parents to the third-and-higher generations.
Results from the probit models are presented in Table 3. The numbers in the table are marginal effects (dF/dX) and show the difference in the probability of self-employment associated with a one-unit increase in an independent variable when the values of other variables are held at their means.
When the socio-demographic variables included in the model were considered, men and women with a university degree in medicine, dentistry, veterinary medicine, or optometry were found to have a much higher probability of self-employment than individuals with other levels of educational attainment. Years of potential work experience were positively associated with self-employment. Married individuals were likelier than others to be self-employed, as were individuals with children at home. Homeowners were likelier than renters to be self-employed. Individuals whose mother tongue was English or French tended to have lower self-employment rates than individuals with other mother tongues. 9 There were large variations in self-employment rates according to ethnic background/visible minority status. Multivariate results for generational differences in self-employment rates between men and women are discussed in turn.
For men, with respect to the first question posed at the outset—whether the children of immigrants are likelier or less likely than their parents to be self-employed—the multivariate results indicate that sons who are second-generation immigrants have a self-employment rate slightly higher (by 0.5 percentage points) than that of their immigrant fathers (this is the difference between the coefficients for second-generation sons and the coefficients for the immigrant fathers of the second generation). Similarly, third-and-higher-generation sons had essentially the same self-employment rate as their fathers. In contrast, the self-employment rate of sons of the 1.5 generation was 5.3-percentage-points higher than that of their fathers.
It should be noted that, in the descriptive results presented in Table 2, which do not take into account differences in socio-demographic characteristics, self-employment rates were about 1-percentage-point to 2-percentage-points lower among the second-generation sons and the third-and-higher-generation sons than among their fathers. This is not the case in the multivariate results, and the implication is that changes in socio-demographic characteristics over generations tended to reduce self-employment rates among sons in 2006. A further decomposition analysis shows that three factors accounted for much of this change: a decrease in the proportion of sons who were married; a decrease in the proportion of sons with children; and a decline in sons' years of potential work experience (as a result of having more years of schooling) (see Table 4).
With respect to the second question posed—whether children of immigrants are likelier or less likely than children of Canadian-born parents to be self-employed—sons who are second-generation immigrants have a significantly higher self-employment rate than sons in the third-and-high generations—a difference of 1.4 percentage points. Generational succession in self-employment rates from immigrant parents to the second generation is about the same as from Canadian-born parents to the third-and-higher generations. Hence, the higher self-employment rate among second-generation sons is due to their higher 'starting point'—that is, the higher self-employment rate among their fathers than among the fathers of third-and-higher-generation sons.
The answer to the third question posed—whether the generational change from immigrant parents to their children in the self-employment rate is different from the change from Canadian-born parents to their children—is addressed above. Again, the generational succession in self-employment is about the same from immigrant fathers to their second-generation sons as it is from Canadian-born fathers to their sons. Sons in the 1.5 generation are again distinct, in that generational succession among this group is far higher than it is among the other two groups.
For women, with respect to the first question posed, in terms of self-employment rates, daughters in all three groups had a statistically higher self-employment rate than did their respective mothers—a difference of 2 percentage points to 4 percentage points. The increase from mothers to daughters was slightly smaller among the second generation than among the 1.5 generation and the third-and-higher generations. These group differences were due to a higher self-employment rate among the mothers of the second generation than among mothers of the other two groups.
With respect to the second question posed (regarding group differences among daughters), it is found that second-generation daughters and third-and-higher-generation daughters have similar self-employment rates; the 1.5 generation has a slightly higher rate than the other two groups. With respect to the third question, regarding generational changes in self-employment rates, the increase from mothers to daughters was found to be slightly smaller among the second-generation daughters than among the third-and-higher generations—a difference of about 0.5 percentage points. The inter-generational change was largest from immigrant mothers to 1.5-generation daughters.
5 Discussion and conclusion
This study examines intergenerational changes in self-employment rates among immigrant parents and their children at the same age range but 25 years apart. The focus is on three questions: (1) Are children of immigrants likelier or less likely than immigrant parents to be self-employed?; (2) Are children of immigrant likelier or less likely than the third-and-higher generations to be self-employed?; (3) Is the generational change in the self-employment rate from immigrant parents to the children of immigrants different from the generational change from Canadian-born parents to their children?
The results suggest that the second-generation men (the Canadian-born male children of immigrants) had a lower self-employment rate in 2006 than did immigrant fathers in 1981. However, the two generations' self-employment rates were found to be about the same after the socio-demographic differences between them were taken into account. Compared with immigrant fathers at the same age, the second-generation men had fewer years of work experience, a lower marriage rate, and fewer children, and these three demographic factors account for most of the decline in the second-generation men's self-employment rate.
This intergenerational change in the self-employment rate and the associated demographic factors are not unique to the second generation; they are also evident among third-and-higher-generation men. When changes in socio-demographic factors are taken into account, generational succession in self-employment rates from immigrant parents to the second generation was about the same as from Canadian-born parents to the third-and-higher generations.
The second-generation men had a higher self-employment rate than the third-and-higher-generation men. This is consistent with the group difference between their fathers. Fathers of the second generation had a higher self-employment rate than fathers of the third-and-higher generations; this is correlated with the likelihood of self-employment among their children. Census data do not shed light on how or why this might occur, although researchers point to factors such as propensity to undertake risk, inheritance of parents' business assets, networks, and experience, and the importance of role modeling (Aldrich and Kim 2007; Andersson and Hammarstedt 2010).
The 1.5-generation men (foreign-born male children of immigrants) had a higher self-employment rate than did their fathers and had the highest self-employment rate of the three groups considered. This remained the case when socio-demographic characteristics were taken into account.
The 1.5-generation women, second-generation women, and third-and-higher-generation women in 2006 all had higher self-employment rates than their mothers did 25 years previously. This broad increase is consistent with the general trends in women's educational attainment, labour force participation, diversification in occupational structures, and earnings over recent decades (Goldin 2006; Kuhn and Schuetze 2001). The increase in self-employment from mothers to daughters was slightly smaller among the second generation than among the 1.5 generation and the third-and-higher generations.
Overall, the results of this study suggest that the intergenerational succession in self-employment rates is about the same from immigrant parents to the second generation as from Canadian-born parents to the third-and-higher generations. For both groups, the intergenerational transition is also affected by similar socio-demographic factors. Of course, the "starting point" is still important. With a similar intergenerational succession rate, a higher self-employment rate among immigrant parents than among Canadian-born parents leads to a higher self-employment rate among the second generation than among the third-and-higher generations, particularly for men.
6.1 Intergenerational comparison of the characteristics of self-employed and paid workers
In addition to differences in the self-employment rate, there were also large differences in education, potential work experience, and earnings of self-employed and paid workers, both among parents by immigration status and among children by generational status (Table 5). This information is not readily available elsewhere and is provided here as supplementary material.
Immigrant fathers had higher educational attainment than did Canadian-born fathers, and this lead was passed on to their sons 25 years later, regardless of either's self-employment status. The gap in university completion rates between male children of immigrants (both the 1.5 generation and the second generation) and the third-and-higher-generation men in 2006 was about the same as or was larger than the gap between immigrant fathers and Canadian-born fathers in 1981 (Table 5, Chart 1, and Chart 2). About 29% of self-employed 1.5-generation and second-generation men obtained a university degree, compared with 20% of self-employed third-and-higher-generation men.
Young adult men in 2006 had fewer years of potential work experience than their fathers in the same age range had 25 years previously, a result related to rising educational levels and more years spent at school over generations. Paid workers tended to experience a larger decrease in years of potential work experience than the self-employed over generations. The decrease was particularly large from immigrant fathers to their sons. There was little change in the years of potential work experience among the self-employed from Canadian-born fathers to third-and-higher-generation sons.
While 1.5-generation men, second-generation men, and third-and-higher-generation men were better educated than their fathers, their average annual self-employment earnings were much lower than their fathers' (Table 5 and Chart 5). The third-and-higher-generation self-employed men aged 25 to 44 earned 21% less than their parents had at the same age some 25 years previously, even though both had similar years of potential work experience. The intergenerational decline in self-employment earnings was also large from immigrant fathers to 1.5-generation men, but was relatively small from immigrant fathers to second-generation men.
In contrast, the magnitude of the generational decline in paid-employment earnings was much smaller than that of the generational decline in self-employment earnings. The earnings of paid workers aged 25 to 44 declined by about 7% from Canadian-born fathers to their third-and-higher-generation sons and declined by 3% from immigrant fathers to their 1.5-generation sons (Table 5 and Chart 6). From immigrant fathers to their second-generation sons, the earnings of paid-employment workers increased by 6% over this period.
Previous Canadian and U.S. studies have observed the decline in earnings of young men in the paid labour market, and numerous explanations have been put forward to explain this decline (e.g.: Beaudry and Green 2000; Katz and Autor 1999). The much larger decline in self-employment earnings, however, is less well-known and likely reflects the changing nature of self-employment among young men (e.g., rising share of self-employed without paid help, and rising heterogeneity and more precarious jobs among the self-employed) (Arum and Mueller 2004; Baldwin and Chowhan 2003; Kuhn and Schuetze 2001).
Among women, the rise in educational attainment from mothers to daughters was much faster than that from fathers to sons (Table 5, Chart 3, and Chart 4). Regardless of immigration status and self-employment status, mothers had much lower university completion rates than fathers in 1981. The pattern was reversed 25 years later. Young women in 2006 surpassed young men by a large margin in university completion rates. As is the case with their male counterparts, young women of immigrant parents have higher university completion rates than their third-and-higher-generation counterparts.
Daughters earned more than their mothers in both self-employment and the paid labour market (Table 5, Chart 7, and Chart 8); this result is very different from the generational changes in earnings observed among young men. This finding is consistent with the general trend of continuing increases in women's educational attainment, labour force participation, and earnings over the recent decades (Goldin 2006; Kuhn and Schuetze 2001). Nevertheless, the earnings rise in paid-employment was much more substantial than the rise in self-employment. As a result, the advantage of self-employment in average earnings relative to paid-employment among young women, as among young men, disappeared over the generations.
6.2 Long-term changes in the characteristics of self-employed and paid workers by immigration status
Whereas Appendix subsection 6.1 discusses generational changes in the characteristics of self-employed and paid workers when both parents and children were young adults (aged 25 to 44), this section provides a broader context by looking at the long-term changes in the characteristics of self-employed and paid workers aged 20 to 64. From the descriptive statistics in Table 6, Table 7, and Table 8, several summary points can be drawn.
First, a consistent pattern observed over the period from 1981 to 2006 is that self-employed workers are more highly educated than paid workers, as reflected by the share with university degrees. The share of self-employed Canadian-born men and immigrant women who hold a university degree is 4-percentage-points to 6-percentage-points higher than the share of paid workers among these two groups who do so. This pattern also holds for immigrant men until 2006, when very little difference existed in the share holding university degrees between the self-employed and paid immigrant workers.
Second, another consistent pattern is that self-employed workers tend to have a greater number of years of potential work experience than do paid workers. Among the Canadian-born, self-employed workers on average have 4 to 5 more years of work experience than paid workers. The difference in years of potential work experience between immigrant self-employed and paid workers (about 1 to 2 years) is not as large as the difference between Canadian-born individuals belonging to those two groups.
Third, among immigrants, the difference in average earnings between self-employed and paid workers changed drastically over time. 10 For immigrant men, the earnings of self-employed workers were higher than those of paid workers in 1981 and 1991, but this pattern has been reversed since 2001. 11 By 2006, self-employed immigrant men earned 17% less than their counterparts in the paid labour market. Over the 25-year period, the earnings of immigrant male paid workers declined initially and became stable starting in 1991. In contrast, the earnings of immigrant self-employed men declined considerably between 1991 and 2006. As Table 7 and Table 8 show, this large change over time was experienced not only by recent immigrants who had been in the country for a short period of time. The lead in earnings from self-employment over paid-employment also disappeared for immigrants who had been in the country for over 10 years. A similar trend is observed among immigrant women.
Among Canadian-born men, self-employed workers on average have higher earnings than do paid workers, although the difference narrowed over the 25-year period. Over this time, the average earnings of the self-employed changed little, while earnings of paid workers rose by 12%. The difference in earnings between the self-employed and paid workers was small among Canadian-born women over the entire period.
As a result of the divergent trends in self-employment earnings between adult immigrants and the Canadian-born, there was a complete reversal in the relative earnings position of self-employed adult immigrants. While self-employed immigrant men on average had slightly higher earnings than self-employed Canadian-born men in 1981, they were earning 26% less by 2006. Among women, self-employed immigrants earned 19% more in 1981, but 14% less in 2006, than self-employed Canadian-born. These large changes over time among immigrants suggest that the results from the analyses on immigrant parents who were observed in 1981 should not be generalized to adult immigrant parents who have arrived since the 1980s. These results call for a more careful examination of the changing nature of self-employment in general and of self-employment among immigrants in particular. 12
The significant decline in the earnings of the self-employed relative to paid workers likely reflects the changing nature of self-employment in general. It has been noted that the nature of self-employment may have changed over the last few decades (Arum and Mueller 2004). Previous empirical studies have shown that much of the increase in self-employment was concentrated among self-employed workers without paid help, particularly in the 1990s (LaRochelle-Côté 2010; Lin et al. 1999). While the self-employed grew in number, the growth in their net earnings fell behind the growth in the earnings of paid workers in the 1990s (Baldwin and Chowhan 2003). Kuhn and Schuetze (2001) examined the quality of new self-employment as measured by earnings, full-time status, and the presence of employees for individuals who had been self-employed for less than one year. They found deterioration in all three aspects for men and improvement in all three aspects for women between the 1980s and the 1990s. They suggested that women's increased self-employment was a response to improved opportunities in the labour market and the increased attractiveness of self-employment to women. However, the increase in men's self-employment rates likely reflects the fact that wage-and-salary opportunities became less attractive and less abundant for them (Kuhn and Schuetze 2001).
6.3 Trends in self-employment with alternative self-employment definitions
For the purpose of robustness check, the trends in self-employment rates and the characteristics of self-employed and paid workers are also examined on the basis of two alternative definitions. In the first alternative definition, self-employed workers include only those who are self-employed in unincorporated businesses, while those who are self-employed in incorporated business are treated as paid workers. 13 The second alternative definition defines self-employed workers as those whose net self-employment earnings account for more than half of their total employment earnings in the year prior to the census. 14 Since census respondents were instructed to report self-employment earnings only if they had worked in an unincorporated business, those who were self-employed in an incorporated business would report their earnings as wages/salaries and thus be treated as paid workers (they are paid by their own businesses) in the second alternative definition. Table 9 and Table 10 present self-employment rates and characteristics of self-employed and paid workers based on the two alternative approaches.
A comparison of the rates in Table 1 and Table 9 shows that self-employment rates are substantially higher when those who are self-employed in incorporated businesses are treated as self-employed workers. Immigrants are likelier to be affected by the difference in definitions since they tend to be likelier to be self-employed in incorporated businesses than the Canadian-born. Furthermore, at least for men, self-employed workers in incorporated businesses tend have higher educational attainment than their counterparts in unincorporated businesses. For both men and women, self-employed workers in incorporated businesses tend to have higher earnings than self-employed workers in unincorporated business. Although the levels are different, Table 1 and Table 9 show similar trends in the self-employment rate.
In Table 10, self-employment is based on reported self-employment earnings in the year prior to the census. This table shows a very similar trend in self-employment rates to that in Table 9 from 1981 to 2001. However, in the 2001-to-2006 period, the self-employment rate either declined or changed little in Table 1 and Table 9, but increased substantially in Table 10. The increase in Table 10 likely results from the changes in the way income data were collected in the census. In the 2006 Census, income data for the majority of the population were derived from their tax files. As a result, there were more individuals with a small income in the 2006 Census than in the 2001 Census. Therefore, this approach of defining self-employment status on the basis of the relative share of self-employment income in the total earnings is less compatible with earlier censuses than the approach based on self-reported self-employment status.