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Article Excerpt
This article reports the results of an empirical analysis of self-employment among recent college and university graduates using the National Graduates Survey databases. ft finds that self-employment rates two years after graduation, calculated by year of graduation (1982, 1986, 1990 and 1995) and level of education, ranged from 6.5 percent to 7.8 percent for men, and from 3.2 percent to 5.2 percent for women. Five years after graduation, the rates had increased, ranging from 9.9 percent to 11.1 percent for men, and from 5.3 percent to 6.7 percent for women. The evidence regarding employment rates, job satisfaction, the job-education skill match and earnings (the latter including the estimation of both cross-sectional and fixed effects models) suggests that self-employment is generally associated with enhanced labour market outcomes-that is, the result of "pull" factors. Policy implications are discussed.
Est articulo presenta los resultados de un analisis empirico del auto-empleo entre los graduados recientes de colegios y universidades en base a los datos de la encuesta Nacional de Graduados. Se constata que la tasa de auto-empleo durante los dos anos despues la graduacion, calculado por cohorte y por nivel de educacion, fluctua de 6,5% a 7,8% por los hombres, y de 3,2% a 5,2% por las mujeres. Cinco anos despues la graduacion, las tasas han aumentado, fluctuando de 9,9% a 11,1% por los hombres y de 5,3% a 6,7% por las mujeres. La tasa no mostro tendencias claras a traves las tres primeras cohortes de graduados (representando aquellos que completaron sus estudios en 1982, 1986 y 1990). Sin embargo, la incidencia del auto-empleo por la mayoria de graduados recientes (aquellos que han terminado en 1995) ha estado en alza respecto a los niveles anteriores, aunque sea de manera desigual, y no en todos los casos. El estudio de las tasas de empleo, satisfaccion en el trabajo, la concordancia empleo, calificacion e ingresos (este ultimo incluyendo el estimado de modelos transversales y de efectos fijos) sugiere que el auto-empleo esta generalmente asociado con los resultados globales del mercado de trabajo, es decir, el resultado de factores "de peso". Las implicaciones politicas de esta situacion son discutidas.
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Labour markets have been changing in some very important ways in the last two decades. Although most employed Canadians still hold only one full-time permanent paid job, an increasing portion of the labour force can be found in "non-standard" types of work, such as part-time employment, temporary or contract work arrangements, self-employment, or multiple job holding (Krahn 1995). There has, in particular, been substantial growth in the number of Canadians who are self-employed. As a result, in 2001, the self-employed accounted for 15.3 percent of all workers, up from 12.8 percent in 1981 (Labour Force Survey data).
Being self-employed-as opposed to being a paid worker-could be for one of two broad reasons: not being able to find suitable employment of the more conventional status, or preferring the self-employment status for personal reasons or due to any short-term monetary benefits and/or enhanced longer-term career opportunities which might accrue. One important question is the following: are individuals pushed toward self-employment because of the unavailability of paid work, or are they pulled into self-employment because of its comparative advantages?
This article contributes to our understanding of the self-employment phenomenon by documenting and analyzing the patterns of self-employment among four recent cohorts of Canadian post-secondary (college and university) graduates in the five years following graduation using data from the National Graduates Surveys (NGS). (1) Graduates are a particularly interesting group to study in terms of self-employment. First, thanks to their positioning at the margin (entry point) of the labour market, they presumably reflect recent trends and better portend other changes to come than do the more general population of workers. Second, if new generations of younger workers are facing a general decline in labour market opportunities in the form of being forced into more non-standard work, policy measures--preventative, remedial, or compensatory--may be warranted.
The article begins with an empirical documentation of the incidence of self-employment (levels, patterns and trends) among graduates, broken down by their level of education (college, bachelor's, master's and doctorate), sex and year of graduation. It then analyses various outcomes of the self-employed versus paid workers in order to address the issue of whether self-employment tends to be the preferred employment option for those who enter it, the result of a lack of suitable "conventional" employment opportunities, or some combination of the two. The analysis makes use of a variety of analytical approaches, ranging from simple tables and relatively standard cross-sectional econometric models to a fuller exploitation of the longitudinal structure of the first three (full) NGS cohorts to compare stayers and movers.
Two general conclusions may be drawn from the analysis. First, the incidence of self-employment was relatively stable for the first three cohorts of graduates covered in the analysis (those who completed their studies in 1982, 1986, and 1990), the overall rates ranging from 6.5 percent to 11.1 percent among male graduates and from 3.2 to 6.7 percent for females. Rates then tended to be higher-but only moderately so and only for some groups-among graduates of the most recent cohort (those who graduated in 1995). There is some evidence of an upward trend in selfemployment among recent post-secondary graduates but not a particularly strong one, and only since the mid-1990s.
Second, the evidence generally points to self-employment as being a relatively attractive job status. This is seen in a number of ways. At the aggregate level, for every cohort the rates of self-employment rise from the first interview following graduation (after two years) to the second (after five years), an interval over which job opportunities generally improve significantly for graduates. At the individual level, comparisons of earnings, the job-education skill match and job satisfaction offer little evidence that the self-employment status is generally characterized by less favourable outcomes, and indicate it is particularly marked by generally higher (not lower) overall levels of job satisfaction. Finally, both conventional crosssectional earnings models and difference equations which control for fixed effects with which job status might be correlated (such as ability and ambition) point to self-employment being a higher-paying (and therefore more attractive) job status than the conventional paid wor ker situation.
The article is laid out in a straightforward fashion: the next section provides a review of the existing empirical evidence and economic theory; the third section offers a description of the National Graduates Surveys databases and the samples used in the analysis; the presentation of the empirical findings then follows; and the concluding section summarizes the major findings and their implications.
THE CONTEXT, EMPIRICAL EVIDENCE AND ECONOMIC THEORY
The Labour Market Context
The Canadian labour market changed in many ways over the last two decades. First, on the supply-side, the number of less educated workers decreased, while the supply of highly educated workers grew dramatically. This increase in educational attainment had two particular dimensions: increased educational attainment for women relative to men, and higher educational attainment for experienced workers (aged 45 to 54) relative to youth (25 to 34). The age structure of the labour force also changed; workers of the 1990s were more experienced than those of previous decades. Overall, these changes translated into a workforce with substantially increased levels of human capital as conventionally measured by labour economists.
A second set of important changes pertains to the demand side of the labour market. Forces associated with trade and technology contributed to the transition toward a knowledge-based economy. There was also a weakening of aggregate demand. The annual average growth rate of the gross domestic product was almost 3 percent in the 1980s (1980-1989), but only 1.8 percent over the 1990s (1990-1998). The weakness of GDP growth contributed to sluggish employment growth which in turn could have affected other outcomes such as self-employment.
At the institutional level, changes in the Employment Insurance program, modifications of the social assistance system and the introduction of new programs such as the Canadian Child Benefit System also influenced the labour market in the 1990s. Finally, on the firm side, businesses changed the way they manage their workforces. Terms such as technological change, rationalization, high performance workplaces and innovation in work organization are now common in our vocabulary. However, our understanding of their effects on the labour market is far from complete. (2)
Trends in Self-Employment
During the same period, non-standard work in general was becoming more common (Krahn 1995); included in this, self-employment increased while paid employment expanded only weakly. (3) In 1997, (4) nearly 2.5 million Canadian workers reported being self-employed, compared to over 1.2 million in 1976. Over this period, the growth in self-employment averaged 3.5 percent per annum compared to 1.4 percent for paid employment. Indeed, the rate of growth in self-employment growth accelerated from 2.4 percent per year in the 1980s to 4.1 percent during the first eight years of the 1990s. In comparison, growth in paid employment slowed from an average rate of 1.9 percent in the 1980s to 0.2 percent in the 1990s. Canada stands out as one of the OECD countries with the greatest growth in self-employment relative to paid employment over the last decade (OECD 2000).
Self-employment has tended to be more prevalent among men than women; for example, in 1996, 20 percent of men were self-employed, compared to 12.5 percent for women. Self-employed workers also tend to be older than paid employees: only 25 percent of the self-employed are under the age of 35, even though this age group represents 45 percent of all employees. The probability of being self-employed increases with age, probably at least partly because it takes time to build the experience, resources and skills to own a business (Cohen 1998). Finally, there is generally a greater incidence of self-employment among those with both low and high education: in 1996, self-employment rates were above average for both those with less than grade 11 and those with graduate degrees (Statistics Canada 1997).
The Theory and Evidence
The increase in self-employment has motivated numerous explorations both of a theoretical and of an empirical nature. (5) Empirical analyses of the determinants of self-employment focus not only on "traditional" variables such as education, experience, age and family background, but also on other factors such as "entrepreneurial drive" (Evans and Leighton 1989), liquidity constraints (Evans and Jovanovic 1989; Blanchflower and Oswald 1990, 1998; Dunn and Holtz-Eakin 2000) and intergenerational links (Dunn and Holtz-Eakin 2000).
Rees and Shah (1986) propose, as an extension of the two-sector model of labour supply (Killingsworth 1983), a theory...
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