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·	From Theory To Practice

• Introduction
• Trends, Incidence and Profile
• Reasons for Growth
• Job Quality
• Determinants of Success and Failure
• Impacts
• Lessons Learned

Introduction

This study is part of the Lessons Learned series produced by Human Resources Development Canada. It incorporates previous evaluations and research findings to identify what works and what does not in the development of public policies and programs.

This particular study summarizes and updates what is known about own-account self-employment (OASE).

Trends, Incidence and Profile

In 1997, there were nearly 1.5 million own-account self-employed people in Canada, representing almost 10 per cent of the total working population. Between 1976 and 1995, the number of self-employed workers almost doubled while total employment grew by less than 40 per cent over the same period.

The increasing incidence of OASE has been observed for both men and women, for all age groups and in all industry and occupation groups except agriculture. In the 1990's the phenomenon also transcended education groups and it occurred in all regions.

The profile of the typical self-employed worker is different than that of paid employees. The own-account self-employed are more likely to be male, older, married, and in some cases, to have no more than a high school diploma. Comparing across population sub-groups, OASE incidence rises with age and is higher among males than females. However, this profile is shifting. In the 1990's, OASE growth was more significant for women and youth than among men and older workers. It is also noteworthy that while younger people are still less likely to be self-employed than older people, they are actually more likely to state an interest in self-employment.

Some observers note a qualitative change in the make-up of the self-employed. There are now greater numbers of higher-skilled managers and professionals among the self-employed. Many people interviewed for this study described the managers and professionals entering self-employment occupations as more motivated and better able to succeed than many of their counterparts in the blue-collar who previously dominated the self-employed ranks. There is a belief among those interviewed that, in the 1990's labour market, the members of blue-collar trades have fewer of the skills needed to survive as a self-employed business person.

Reasons for Growth

The consensus is that employer practices such as downsizing and subcontracting have been the contributing factor responsible for self-employment growth. It has been suggested that outsourcing has levelled off thereby forcing unemployed workers to fend for themselves more; this accounts for the increase in self-employment.

Growth in self-employment over the last two decades can also be linked to the continuing growth of the service sector in Canada’s economy, a sector in which self-employment opportunities are greater. However, there has been a general rise in self-employment in all sectors of the economy and most observers agree that self-employment will continue to grow.

The above mentioned factors increased both the “push” and “pull” into self-employment, although there are diverging views on the motivations.

Some people are pulled toward self-employment rather than traditional jobs. In particular, these individuals enjoy the independence, the flexibility, and the variety that self-employment offers. Commentators also identify technology, demography and the growth of niche markets as additional factors that could encourage individuals to choose self-employment.On the other hand, several respondents state that, though they were initially pushed into self-employment through situations such as job loss through downsizing, they have come to enjoy the “pull”-like aspects of their self-employment experience.

Job Quality

While there is no doubt that self-employment has contributed significantly to the quantity of new jobs, there are a few observations to be made pertaining to the quality of self-employed jobs? At first glance, the general data would suggest the job quality of the self-employed is lower than that of the paid employed person. Evidence suggests that the self-employed work longer hours than paid workers, that the self-employed earn only about two-thirds of what paid workers earn on a mean annual basis (a gap that has closed since the mid-1980s) and that the self-employed have lower benefits coverage than the paid employed. These findings are however open to question because of methodological and conceptual concerns relative to the underlying data.

Other aspects of job quality are the irregular income flow of self-employment and the nature of job security for the self-employed. Some experience a great deal of anxiety over the irregular income flow (“feast or famine”). Others, despite the uneven income flow, enjoy the fact that their income is directly tied to their work effort. Many self-employed workers view the lack of employment benefits and the lack of pensions as a serious drawback.

Other disadvantages of self-employment may include isolation from fellow employees, a lack of training opportunities, negative attitudes of family and friends, and having to perform all tasks required of a business, such as accounting, purchasing, debt collecting, researching and marketing. Contradictions over the advantages of self-employment may also be attributable to the fact that many of the perceived benefits linked to “independence” and “control” are often more apparent than real. The self-employed often operate in situations where the client in effect becomes the boss.This differs from the definition of a boss in non self-employment work environments.

Determinants of Success and Failure

The success or failure of any self-employment initiative depends upon many factors, both tangible and intangible. Some factors are linked to the essential aspects of operating any business, such as the start-up process, overall financing and the impact of technology. These exist in the context of the broader external circumstances that also affect businesses such as the state of the economy and particularly markets.

a)Business startup is a challenge for many own-account self-employed people for the following reasons:

• Marketing and promotion are usually difficult during the first year.
• Business plans offering concrete, well-researched visions of what the business will be and how it will succeed are valuable but are not always used or they are not in a usable format.
• Lack of capital and difficulty in obtaining adequate financing are also a challenge for many self-employed workers.

b)Technology is increasingly essential for any business including the self-employed ones. Self-employment practitioners and officers feel that there is potential for the Internet to provide information and open up business opportunities, whereby overcoming isolation and lack of employer-provided training. It appears, however, that many self-employed people are unaware of this potential tool, or do not have the perseverance, know-how, focus, time or money to use it to find opportunities.

c)Among the self-employed, there is a growing reliance on informal networks, which have both economic and social value. Within these networks, the self-employed can take advantage of the camaraderie, contacts, and support provided by self-employed colleagues. They can also take advantage of the economies of scale by banding together on group-discounted benefits packages, pensions and possibly group-discounted overhead or sharing overhead costs.

Most research and the qualitative information gathered in this study indicate that there is an important link between the personal traits, the personality and the actions of self-employed individuals and their success. Other determinants of a successful self-employment worker may include expectations, job content, business skills and training.

Impacts

Self-employment has different impacts on individuals; it largely depends on the characteristics of the worker as described above. Older workers who come from a traditional school system and stable, longstanding employment can be expected to have much more difficulty adjusting to self-employment than younger persons who come from an education system and a labour market which prepared them for “flexible” employment relationships. Regardless of age and prior employment tenure, the impact of self-employment on higher-skilled, white-collar employees is likely to be more positive than on lower-skilled blue-collar workers.

At the community level, observers suggest that the growth of self-employment is leading to a number of changes in settlement and economic patterns within the urban system. These changes include: a greater number of people working at home; less commuting; less car pollution; less a need for public transportation; new construction of houses with home offices; renovation of existing houses to add home office; and a greater industrial diversification, with less dependence on a single, large employer.

Suggested costs of growing self-employment are many. One reason is the possibility of reduced social cohesion, or at least the attenuation of the workplace as a centre of social convocation. Also there are increasing numbers of persons without disability insurance, pension coverage and training programs, of which the workplace is normally the major source and to which the increasing numbers of self-employed do not have access. Self-employed workers also work in an environment where there is possible growth of “hidden” employment and possible erosion of the tax base or the complete concealment of income. Finally, self-employed workers also have the possibility of writing off greater proportions of income as business expenses.

Lessons Learned

Six lessons are derived from the evidence and comments from self-employed workers and program experts. First, opportunities for government to support self-employment exist. But there are different views on the best steps to take.

Second, some self-employed people do not want anything more than a better business climate, such as action on paper burden.

Third, when it comes to specific help, many people have benefitted from government programs and services for the self-employed. Studies suggest that these play a valuable role when they help with start-ups, support training or offer access to benefits and advice. However, programs and services need to be better advertised and more accessible.

Fourth, government actions should recognize the diversity among the self-employed workers.

Some people are pushed into self-employment because they see no other realistic options. Others are pulled into it as a lifestyle and a stepping stone to larger business opportunities.

Fifth, young people have different expectations and needs than older people. Some older workers lack the diverse business management skills and experience that they need to be self-employed. People coming from skilled, professional or managerial backgrounds may be better equipped than blue-collar workers to take on self-employment. As well, these skilled individuals may find that their earnings are more competitive with those of paid employees than blue-collar self-employed workers.

There are still substantial gaps in our understanding of the self-employment phenomenon in Canada. That is the sixth lesson. There needs to be further enquiry into information about the incomes, the benefits, the skills and the needs of the self-employed workers. Other factors that need further explanation include the components that push and pull people into working for themselves; factors that lead to the success or the failure of self-employed workers; the quality of working life for self-employed individuals; and the impact of public policy on workers who are self-employed. More information will result in better informed decisions that will benefit self-employed workers, the Canadian labour market and the Canadian economy.

This summary is produced by Human Resources Development Canada. Copies of this summary and the full Lessons Learned final report are available from:

Evaluation and Data Development, Strategic Policy
Human Resources Development Canada
Hull, Quebec. K1A 0J9

Telephone: 1-888-440-4080
Fax: (613) 953-7887
e-mail: edd@hrdc-drhc.gc.ca

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