More Seniors Are Choosing Self-Employment

If you want to find America's entrepreneurs, should you be searching places frequented by senior citizens? The answer, from several data sources, appears to be yes. Contrary to the popular perception that entrepreneurship is a young person's game, seniors are more likely than young people to operate their own businesses. According to a June 2009 report by Dane Stangler of the Ewing Marion Kauffman Foundation: "In every single year from 1996 to 2007, Americans between the ages of 55 and 64 had a higher rate of entrepreneurial activity than those aged 20 to 34." Moreover, the 2008 U.S. Global Entrepreneurship Monitor report, released earlier this month, shows that the rate of entrepreneurial activity rose among older Americans but fell among younger ones. From 2007 to 2008, both the total rate of entrepreneurial activity (a measure that combines people actively planning to start businesses and those owning operating businesses less than 42 months of age) and the rate of ownership of established businesses (those more than 42 months old) showed a decline of 8% to 9% for the 18-to-44 age segments and an equal increase in groups aged 45 to 99. For more current information, I looked at the November 2009 Bureau of Labor Statistics data on both unincorporated and incorporated self-employment. (Incorporated self-employed people are those who respond to a follow-up question about their self-employment by indicating that their business is incorporated.) In the figure to the right, I plotted the self-employment rates for different age groups. incorporation is a better indicatorFor unincorporated self-employment, rates rise with age. Those over 75 have the highest rate of self-employment of any age group, a rate 7.5 times higher than that for people aged 20 to 24 and 4 times higher than for people 25 to 34. Admittedly, overall self-employment rates are an imprecise measure of entrepreneurship. A lot of people who are self-employed might be independent contractors. For tax and benefits reasons, older people might be more likely than younger ones to be employed this way. Therefore, I took a look at incorporated self-employment, too. (Many economists believe that incorporated self-employment is closer to the concept of entrepreneurship than unincorporated self-employment because businesses are more likely to be true companies if people have bothered to incorporate them.) The BLS data show that incorporated self-employment peaks in the 65-to-69 age group, with those just past retirement age being more likely to be self-employed heads of incorporated businesses than members of any age group under 65. In fact, the incorporated self-employment rate is 4 times higher among those aged 65 to 69 than among those aged 25 to 34—and a whopping 25 times higher than among those aged 20 to 24. In the past year, we've experienced growth in the number of unincorporated self-employment among those over 65 (an increase of 11.1%), but shrinkage in the number of unincorporated self-employed among those 16 to 64 (a decrease of 5.4%). In fact, among those 65 to 69 (leaving out those over 70), the number of unincorporated self-employed went up 15.1% from 2008 to 2009. The changes are more muddled for incorporated self-employment because of a 4% increase in the number of incorporated self-employed among those 55 to 64. For incorporated self-employment, splitting the population at age 55 instead of 65 reveals an 8.4% decline among those aged 16 to 54 and an increase of 1.7% among those aged at least 55 from 2008 to 2009. a few key implicationsThese data do not tell us why entrepreneurial activity is higher and increasing among older Americans. It might be a cohort effect. People who entered the work force back in the 1960s might be more entrepreneurial than people born more recently. Or it might be an age effect. Older people might be more likely to go into business for themselves because they have developed the industry and work experience that research shows enhance entrepreneurial performance. So what are the implications of the aging of the self-employed? There are probably many, but here are a few. Part-time self-employment is becoming more prevalent among older entrepreneurs than among younger ones as older entrepreneurs seek the flexibility of running their businesses on less-than-a-full-time basis. Self-employment is becoming more of a second career as older Americans retire or leave jobs to start their own businesses. Self-financing is becoming more prevalent as older self-employed use accumulated savings to finance their entrepreneurial efforts. Whatever the reasons for the graying of the self-employed—and whatever its implications—a university is probably the wrong place for me to work if I want to interact with a lot of Americans starting their own businesses.

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