Rising Self-Employment in the Midst of High Unemployment: An Empirical Analysis of Recent Developments in Canada

Abstract

This paper highlights recent developments in self-employment in Canada and explores its relationship to unemployment/full-time paid employment. There are now two and a half million Canadians working at their own businesses, amounting to 16.2% of the total labour force or accounting for 17.8% of total employment. In the first eight years of the 1990s, self-employment on average expanded by 4.1% per year, contributing to over three out of four new jobs the economy has created. Entry and exit data demonstrate that there are substantial flows into and out of this sector of the economy. Gross flows into and out of self-employment as the main labour market activity averaged nearly half a million per year between 1982 and 1994, amounting to 42% of the total self-employed population.

The fixed-effects modelling results show a statistically significant but empirically small negative (positive) relationship between self-employment and unemployment (full-time paid employment). This conclusion holds true across different data sources, for different time periods, for different measures and definitions, for different empirical samples, and across various estimating techniques. There is also a statistically significant but empirically small negative (positive) relationship between exits out of self-employment and unemployment (full-time paid employment). It appears that a host of non-cyclical factors are behind the recent surge in self-employment.

JEL Classification: J24, J64