The surprising good news in the decline in self-employment

Early in the COVID-19 pandemic, the proportion of self-employed Canadians jumped sharply. Out of work? Try dog walking or consulting.

Since then, that number has dropped steadily. Roughly 13 per cent of all workers are self-employed today, down from 17 per cent at the height of the pandemic and an average of 15 per cent in the decade before the pandemic. This is part of a longer-term trend over the past two decades.

On the surface, a decline in self-employment could be seen as a worrying trend, tied to weakening entrepreneurship. However, the story is more complicated when you look under the hood.

A report published by Bank of Canada economists this week separated self-employment into two categories: entrepreneurs (people who are incorporated) and “the marginal self-employed” (people who are not incorporated). It found that the proportion of incorporated individuals has remained fairly steady since 2000, while the proportion of unincorporated workers has declined markedly.

“The structural decline in self-employment, therefore, may represent a long-term trend of better employment prospects for marginal workers and a compositional shift toward incorporated self-employment,” wrote the team of authors led by Erik Ens.

In other words, more people who were working for themselves out of necessity rather than entrepreneurial zest appear to be finding gainful employment. And that trend appears to have picked up given the high demand from businesses for workers coming out of the pandemic.

This trend appears to be accompanied by a decline in the employment rate in low-wage occupations, which the BoC report also highlights.

“This suggests that excess tightness in the labour market during the post-pandemic economic recovery may have enabled workers in low-wage occupations to reallocate to other occupations,” the authors say. Mark Rendell

Decoder is a weekly feature that unpacks an important economic chart.