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The Entry and Exit Dynamics of Self-Employment in Canada

Zhengxi Lin, Garnett Picot and Janice Compton
Small Business Economics
Vol. 15, No. 2 (Sep., 2000), pp. 105-125
Published by: Springer
Stable URL: http://www.jstor.org/stable/40229099
Page Count: 21
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The Entry and Exit Dynamics of Self-Employment in Canada
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Abstract

This paper documents the extent and cyclically of self-employment entry and exit flows; explores transitions to and from self-employment; and investigates the influence of individual characteristics and labor market experience as well as macroeconomic conditions on the probability of moving into or out of self-employment. The self-employed sector now employs over two and a half million Canadian workers, has expanded on average by over 4% in the 1990s and accounted for over three out of every four new jobs the economy has created. There are substantial flows both into and out of self-employment over the last 15 years. Gross flows into and out of self-employment averaged nearly half a million per year between 1982 and 1994, amounting to 42% of the total self-employed population. Regression results reveal no statistical evidence supporting the dominance of the push hypothesis over the pull hypothesis - the notion that people are increasingly pushed into selfemployment by deteriorating economic conditions. This analysis is done both through time-series analysis and the analysis of the determinants of flows into (and out of) selfemployment. As in paid employment, younger Canadians are subject to higher turnover in self-employment - they are not only more likely to enter but also substantially more likely to leave self-employment. Prior paid-employment experience and prior self-employment experience are both found to be associated with a higher likelihood of entering self-employment. The longer one is self-employed, the less likely he/she is going to leave the business. Having a spouse in business (being selfemployed) substantially increases the likelihood of the other spouse becoming self-employed - a self-employed spouse often attracts the other to either join the family business or start their own. We also find evidence that steady family income through paid-employment from one spouse increases the self-employed's (the other spouse's) affordability to continue with the business venture and hence reduces the likelihood of leaving self-employment.

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