Executive summary
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In the last few decades, immigrant entrepreneurship has become an important feature of labour markets in many industrialized countries. Immigrants are disproportionately represented in self-employment as compared to the domestic-born. While the burgeoning research on self-employment among immigrants underscores its importance with respect to immigrant economic integration, most studies have focused on adult immigrants. Little is known about what motivates the children of immigrants to become entrepreneurs and whether they are subject to the same forces as their parents in choosing self-employment.
Using a generational cohort approach, this paper compares some of the determinants of self-employment among immigrants and their children, including the second generation (Canadian-born children of immigrants) and the 1.5 generation (foreign-born children of immigrant parents). To situate the analyses in a broader context, the paper also examines the intergenerational change from Canadian-born parents to their children (the third-and-higher generations). The analysis addresses the following questions: (1) Were immigrant parents and Canadian-born parents affected by similar "push" and "pull" factors in choosing self-employment?; (2) Were children of immigrants and children of Canadian-born parents affected by similar "push" and "pull" factors in choosing self-employment?; and (3) Did immigrants and the Canadian-born experience similar generational changes in the determinants of self-employment? Specifically, this study examines whether the effects of three important determinants of self-employment—expected earnings differentials between paid employment and self-employment, difficulties in the labour market, and ethnic enclaves—differ between immigrants and the Canadian-born, between children of immigrants and children of the Canadian-born, and between children of immigrants and their parents. The analysis is conducted separately for men and women since the determinants of self-employment and their changing effects over generations could be different by gender.
The data used in this study are from the 20%-sample micro file of the 1981 Canadian Census of Population and the 20%-sample micro file of the 2006 Canadian Census of Population. These datasets are the only Canadian sources that allow comparisons of self-employment patterns by generational status over time. Self-employed workers are defined as individuals who identify themselves as mainly self-employed in their own unincorporated or incorporated business. The analysis is restricted to individuals aged 25-to-44 in order to permit generational comparisons in self-employment patterns between parents and their children at the same age range but 25 years apart. Workers in farming industries are excluded.
The analysis finds a substantial deterioration in the earnings of self-employment relative to paid employment from parents to children regardless of whether the parent was an immigrant. This deterioration was reflected in the expected earnings differentials when individuals switched from paid employment to self-employment. In 1980, about one fifth of male workers would have expected earnings gains when switching from paid employment to self-employment, but this was no longer the case in 2005. The association of the expected earnings differential with individuals' probability of self-employment increased from fathers to their sons. This variable was more strongly associated with the likelihood of self-employment among sons in 2005 than among fathers in 1980 for all three groups, i.e., the 1.5 generation, the second generation, and the third-and-higher generations. Cross-sectionally, this association was weaker among immigrant fathers and their sons than among Canadian-born fathers and their sons.
The "push" effect of labour market difficulty tended to decrease over time for young men. Group-specific local employment rates were associated with higher self-employment rates among fathers in all three groups, but not among their children. One possible factor accounting for the lack of association is that both the availability of self-employment opportunities and the attractiveness of self-employment declined for young men, as evident from the substantial deterioration in self-employment earnings relative to paid-employment earnings.
Group-specific population share, a commonly-used measure of ethnic enclave, was not positively associated with self-employment among immigrant fathers and the sons of immigrant fathers.
Self-employment among young women in 2005 was strongly associated with the expected earnings differential and years of experience, while this was not so among their mothers 25 years prior. Thus, in making the choice of self-employment, young women, as did young men, took into account the expected earnings differential.
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