Understanding Self-Employment Dynamics Among Individuals Nearing Retirement
Bradley T. Heim Consulting, April 2014
The study’s key finding is that the decline in the self-employment among 55- to 64-year-olds over the 1994-2012 period was driven by three factors:
- The self-employed are choosing to find a job at a firm rather than being self-employed. The movement (i.e., exit rate) to wage and salary employment increased over the sample period, particularly among
- the unincorporated self-employed, and particularly to the private sector. The increase is apparent across all regions of the country and across retail and service industries.
- The rate of self-employment among 55-year olds (who comprise about 12 percent of the self-employed aged 55-64) decreased over the sample period; these declines were particularly notable among the unincorporated self-employed and those in the retail sector. Further, the self-employment rate among this group is lower than in the full 55- to 64-year-old cohort.
- The share of 55-year-olds in the 55- to 64-year-old cohort increased.
Other important findings indicate that a higher after-tax price of self-employed health insurance is associated with decreases in entries into self-employment among wage and salary workers (see “Tax Treatment of Self-Employed Health Insurance Premiums” box). The study also finds the following demographic factors are important among those nearing retirement:
- Women and African-Americans are less likely to enter into self-employment and are more likely to leave self-employment for a wage-and-salary job or retirement.
- Older individuals are less likely to leave self-employment for wage-and-salary employment and more likely to leave for retirement; they are less likely to enter self-employment from retirement.
- Being married is positively associated with exits to retirement.
In terms of income and wealth variables:
- Individuals with greater wealth (measured by investment income) are less likely to leave self-employment for wage-and-salary work although they are more likely to leave for retirement.
- Individuals with more labor and transfer income are more likely to leave self-employment for wage-and-salary work but less likely to leave for retirement.
- Having an employer pension plan in the prior year is negatively related to entry into self-employment from a wage-and-salary job, but positively associated with entry from not working.
In terms of state-level policy and economic variables, neither an improving economy (as measured by lower unemployment rates or higher average wages) nor stricter disability insurance policy significantly impacts either the entrance to self-employment or the rate of exit from self-employment for those aged 55-64 or those at age 55.
Regarding the propensity to be self-employed at age 55, these findings apply:
- Women and African-Americans have a lower propensity to be self-employed at age 55.
- Self-employment at age 55 increases with educational level and income.
- Having an employer pension in the prior year is not significantly related to self-employment at age 55.