Explaining the Recent Rise in Self-Employment: Lifecycle, Cohort and Aggregate Economy Effects

This paper examines the trends and patterns in self-employment in Canada and the United States. In the first part of the paper, an analysis of aggregate and disaggregated trends is presented. The identification of lifecycle, cohort and aggregate economy effects on these trends are then discussed and estimates of their relative importance provided. Little evidence of cohort effects is found, and although a clear lifecycle pattern exists, the age structure in either country did not change enough to account for a majority of the increase in self-employment. Instead, aggregate economy effects are found to be the source of most of the increase in both countries. Various candidates for these aggregate effects offered in the literature are then briefly examined for congruence with the pattern of aggregate economy effects, purged of cohort and lifecycle effects. The results provide some support for the hypothesis that individuals enter self-employment to evade both income and employment taxes. Minimum wages also have strongly significant relationships with the estimated aggregate effects but produced opposite signs for the two countries.