Rand on Self-Employment Among the Older Workers

Conclusions

Given the importance of self-employment at older ages—both relative to the ranks of the self-employed as a whole and relative to the wage and salary workforce at older ages—it is important to have a solid understanding of the characteristics of this segment of the workforce and how those characteristics may be changing over time. The aging of the workforce as the baby boom cohort approaches retirement will almost certainly influence the size and characteristics of the self-employed workforce.

Although the overall trend in self-employment rates has been downward in the past decade, the fact that self-employment rates rise at older ages and that the population is aging suggests that demographics alone may halt or reverse that trend. At the same time, we also know that a growing share of those who are self-employed do so through an incorporated business. The fact that this form of business organization is not officially tracked as a form of self-employment in U.S. labor force statistics may conceal changes in underlying rates of self-employment, particularly among older workers where up to one third are in incorporated businesses. Future research can help deepen our understanding of this important labor force phenomenon.

Our two data sources—cross-sectional time-series data from the CPS and cross-sectional data from the HRS—reveal that older self-employed workers exhibit many of the same characteristics found for the self-employed more generally. Among workers age 51 and above, self-employed workers, compared to their wage and salary counterparts, are older; are more likely to be male, white, married, and college educated; and more likely to be healthier but to have a health condition that limits work.

Self-employed workers are also more likely to be working part-time and to have a family-business or a spouse who is also self-employed. The differences in the age distribution, health status, and work effort among older self-employed workers versus their wage and salary counterparts suggest the self-employed at older ages are able to work longer even despite poorer health, and to work with more flexibility in hours. Thus, self-employed workers may be better able to accommodate their changing preferences for work versus leisure as they make the transition to retirement.

At the same time, older self-employed workers are financially better off than workers in the wage and salary class as measured by household income and wealth, but are less likely to have a pension and health insurance on their current job. Those who become self-employed after age 50—about one third of older self-employed workers—also have lower levels of income and wealth and lower rates of pension and health coverage compared with those who became self-employed earlier in their career and self-employed. Women, whose share of self-employment among older workers has been growing over time, also exhibit lower income, asset, and employee benefit levels than their male counterparts who are self-employed.

Future research can help identify the implications of self-employment for the retirement income security of older workers, especially self-employed women and older workers who make the transition to self-employment later in their careers.

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