In Canada, the number of self-employed people has been rising month after month during this recession. Recently, the thousands going into business for themselves have mitigated many of the employment losses and made the Canadian job numbers look reasonably rosy in comparison to the declines happening in the U.S.
The Globe and Mail referred to this as “The Do-It-Yourself” recovery.
On the one hand, this seems logical in a recession – losing a job can be the spark that pushes people into business for themselves. Yet, on the other hand, the same phenomenon does not appear to be happening in the United States. So, what’s happening and what’s significant?
The divergent self-employment trends may be an indicator of different employment, economic, and workplace trends in the two countries.
It should be noted that some economists argue that self-employment is inferior to full-time, salaried employment and thus should be considered an indicator of economic weakness rather than strength in Canada. However, because the numbers of self-employed are growing so early – when collecting EI benefits would still be an option – it suggests this shift to self-employment is more of a deliberate choice than a move made in desperation.
Also, the 55+ age group has been the dominant demographic group shifting into this category in Canada – it may be that well-educated baby boomers are seeking more flexibility and the option to “cash in” on their years of experience and extensive contacts made over the years. Because basic health care coverage is universal in Canada, the aging baby boomers may feel more free to leave their large employer (or not seek another if their employer laid them off).
Implications:
Could this give the Canadian economy the productivity boost (to catch up to American levels) that has been lacking? That is, in pure economic productivity terms, would it be more efficient for many corporations to hire the talent they need when and as they need it via contracting the self-employed?
From the talent’s perspective, could this be the style that allows much better control over work and life balance?
Can salaried staff and free agents work together on teams (when the free-agents might be working on several projects simultaneously for different companies)?
Flipping the coin, does it matter that the U.S. self-employment rate is not growing?
Your thoughts?
July 13th, 2009 at 12:51 pm
Being self-employed does give you control over your work/life balance. It can be a little scary to be in total control of your destiny. Most people can’t really handle that because they have not been taught how to sell themselves or their services.
Salaried and free agents can work together if the goals and expectations are agreed to upfront. Using consultants is a great way to augment your team for peak works loads and to outsource non-core activities that you do rarely.
It does matter that self-employment in the US is not growing. This shows that most people want a traditional job and don’t want to venture out on their own. It’s kind of sad since traditional jobs are not what grow the economy — it’s the small business, startups that really drive growth.
July 13th, 2009 at 2:30 pm
I wonder how much of an affect does Canada’s single payer health care system has on the rate of entrepreneuership? It is certainly easier to take on the risks of being an entrepreneuer when one’s basic needs, such as health care, are taken care of. I have met people with great business ideas, however opt to stay at a job they don’t necessarily like. They simply don’t want to lose the benefits they have. There are many people who do freelance work, but moonlight with a part-time job that gives them benefits. This is not a good thing for productivity, because their part-time jobs inhibit their productivity as a freelance.
July 13th, 2009 at 4:38 pm
Comment #2 by Deep could be a significant factor in divergence.
July 13th, 2009 at 7:19 pm
[...] Divergent Self-Employment Trends for Canada and U.S. – Creative Class. [...]
July 13th, 2009 at 8:49 pm
[...] part of my daily read, and today, they’re talking about self-employment. Specifically, how self-employment rates are going up in Canada, and down in the US. In Canada, the number of self-employed people has been rising month after month during this [...]
July 13th, 2009 at 11:02 pm
Great comments — WNYmedia.net (#5) is worth a read, analyzing some other possible reasons for the lack of self-employment in Buffalo NY. An intriguing quote:
“…when a 1000 engineers at Intel are laid off, they form 1000 new companies in Silicon Valley. When 1000 auto workers in Buffalo are laid off, what do they do?”
July 14th, 2009 at 7:42 am
I wonder if the credit crunch and general economic implosion has impeded the self-employment trends in the US. Start-ups require capital investment. Older people may consider starting their own business, but their investments/houses have taken a hit so they may not the capital/collateral they once did.
More regional information might be of interest- something tells me the US data might be spiky.
July 14th, 2009 at 9:49 am
As a former Buffalonian myself, I think it is really as simple as saying that they have a midwestern economy with an east coast tax structure. That blogger hit it on the head when he said that “taxes are a killer”. Yes they are.
Cash is king, especially for entrepreneurs. Every dollar in tax is a dollar that can’t be reinvested in a business.
Now, maybe in Silicon Valley, those Intel engineers can find a sugar daddy, I mean venture capitalist, to help get past the taxes. Or maybe the business itself is such that there is nothing to tax.
But that Buffalo autoworker is more likely to start a business selling something and having some physical presence, all of which will be taxed.
I do think mentality has something to do with it. Those politicians the blogger complains about are all Democrats, and all they care about are keeping the unionized public employees happy. Citizens are a distant second, because the unions are really the ones who get you elected. Taxpayers aren’t even on the radar. Neither are small businesses.
People who are (perhaps formerly) unionized are most risk averse, by nature.
It’s weird that people are so scared of health care costs, to the point that they wouldn’t go out on their own. In most places (not New York) you can get catastrophic insurance for real cheap.
July 14th, 2009 at 2:37 pm
sm2,
The American housing crisis does have an affect with the rate on entrepreneurship. Unlike the US, Canadian homeowners are ultimately responsible for their homes. So in the US, when a homeowner defaults on their mortgage, the banks take it over. In Canada, the homeowner is stuck with the house. The housing crisis has caused American banks to absorb too many of these “toxic assets”, which inhibits their ability to give out credit.
World Economic Forum, rated Canada’s banks to be the best in the world. Canadian banks never loosened their regulations over the past 10 years, and operates in the old fashion way. Canadian banks are more capable to give credit to entrepreneurs than Americans.