New Research Report Examines Declining Self-Employment Rate Among Baby Boomers

A new report released by the Office of Advocacy examines the decline of the self-employment rate among baby boomers nearing retirement. Authored by Bradley T. Helm, the report entitled “Understanding Self-Employment Dynamics Among Individuals Nearing Retirement” explores the reasons behind why the self-employment rate (the proportion of the labor force that is self-employed) among individuals aged 55-64 has dropped substantially in the past 20 years.

“America’s baby boomers may not be the jumping-off point for entrepreneurial growth according to this report.  However, moving forward, we can inspire this population to start the business of their dreams and take the leap of faith into entrepreneurship,” said Dr. Winslow Sargeant, Chief Counsel for Advocacy.

According to the report, the self-employment rate among near-retirees was above 18 percent in 1994, but dropped to around 16 percent in the early 2000s, and dropped further to 14.3 percent in 2012.

The study addresses two questions about the decline. First, what is the defining factor causing the decreasing rate of self-employed individuals nearing retirement? And second, what economic and policy variables help to explain the change in these factors over time? This study utilizes almost 20 years of U.S. Census Bureau data to describe in greater detail the continuation, exit, and entry rates with respect to self-employment.

The study’s key findings show that the decline in the self-employment among baby boomers over the 1994-2012 period was driven by factors such as:

  • Self-employed individuals are choosing to find a job at a firm rather than being self-employed; and
  • The rate of self-employment among 55-year-olds (who comprise about 12 percent of the self-employed aged 55-64) has decreased relative to all those age 55-64, while the share of 55-year-olds has increased.

In addition, the study finds that other factors, such as the affordability of individual health insurance, play a role. The author suggests that especially during a recession, individuals are hesitant to leave jobs that provide health insurance.

The author concludes that the findings indicate a need for policies to reduce the exits of near-retirees from self-employment to private wage and salary employment and to increase entrepreneurship among younger individuals. Policy recommendations include increasing the availability and affordability of private health insurance. The author states that an important area for future research will be to evaluate the extent to which recent changes due to the implementation of the Affordable Care Act of 2010 affect rates of self-employment.

The full report, “Understanding Self-Employment Dynamics Among Individuals Nearing Retirement,” as well as a summary, can be viewed on the Office of Advocacy’s website.

Self-employment rates
Self-employment rates