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    Rural and Small Town Canada Analysis Bulletin

    A profile of self-employment in rural and small town Canada: Is there an impending retirement of self-employed business operators?

    Findings

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    Background

    In 2010, the Labour Force Survey reported 2.7 million individuals in Canada who were self-employed. They represented 16% of Canada's total employment (Table 1).

    The number of self-employed in Canada has been increasing over time in conjunction with the growth of the workforce. The number of non-farm self-employed has increased more than the decline in the number of farm self-employed (Appendix Table A1). This has been the experience in some Organisation for Economic Co-operation and Development (OECD) countries (such as Australia, Austria, Ireland, Netherlands and the United States). In a comparison across countries, we note that self-employment is lower in countries with:

    • a more advanced economy (Blanchflower, 2004);
    • an employment protection program; and
    • lower rates of tax evasion (Nunziata, 2009).

    In Canada, there was strong growth between 1997 and 1999. Small declines were recorded in 1986, from 1999 to 2001, in 2006 and in 2010. In general, self-employment has tended to grow faster during difficult labour market conditions or recessions (Picot and Heisz, 2000). However, a recent report showed that typically only a small portion of paid employees became self-employed in the aftermath of a layoff (LaRochelle-Côté, 2010). This suggests that other factors have contributed to a subsequent increase in self-employment. These factors include other possible effects of the downturn on the labour market (such as fewer jobs for new entrants to the labour market or spouses re-entering the labour market if his/her partner has lost his/her job).

    Between October 2008 and October 2009, the number of paid employees declined by 361 thousand, while the number of self-employed workers increased by 115 thousand. Some groups of self-employed showed large increases. The increase in the number of incorporated self-employed without paid help was 128 thousand. Also, those aged 45 and over increased by 156 thousand and those who worked "part-time for economic reasons and wanted full-time" increased by 23 thousand. Large increases were noted in the industry sectors of finance and real estate, wholesale trade, "other" (personal) services and the industry sector of professional, scientific and technical services (LaRochelle-Côté, 2010).

    In 2006, there were about 2 million self-employed in Canada. Within this group, the majority (1.3 million or 64%) were operating unincorporated businesses. The majority of operators of unincorporated businesses were operating without any paid help (0.9 million of 1.3 million or 71%). Thus, overall, 45% of all operators of self-employed businesses were unincorporated with no hired help (i.e., 0.9 million of 2 million self-employed individuals) (Appendix Table A2).

    In 2005, the productivity (i.e. the gross domestic product per hour worked) for the self-employed operating an unincorporated business ranged from a low of under $5/hour in the arts, entertainment and recreation sector and in the manufacturing sector to a high of over $20 hour in the health care and social assistance sector, the retail trade sector and the construction sector (Baldwin and Rispoli, 2010).

    Among workers aged 55 and older, the self-employed were less likely than paid workers to report dissatisfaction with their work-life balance (6.1 percentage points lower probability) (Uriarte-Landa and Hebert, 2009).

    In 2010, 21% of the rural and small town workforce was self-employed

    In 2010, as noted above, at the Canada level, there were 2.7 million individuals who were self employed, representing 16% of total employment (Table 1). Within rural and small town (RST) areas, there were about 0.6 million self-employed, representing 21% of total RST employment.

    As noted by du Plessis (2004a, 2004b), part of the difference in self-employment rates across types of geographic areas is due to the role of farming in rural areas. In Table 1, we present the classification of du Plessis (2004a, 2004b) to show that self-employment, overall, is higher in the census rural areas within larger urban centres (LUCs) (20%) and higher in the census rural areas within RST areas (24%)1.

    However, if we look specifically at the rate of self-employment in the non-agriculture workforce (i.e., individuals not working on farms), we find the self-employment rates remain higher in rural areas, but the urban-rural differences are smaller:

    • 17% of the RST non-agricultural workforce is self-employed; whereas
    • 14% of the LUC non-agricultural workforce is self-employed.

    Thus, rural and small town areas are relatively more intensive in self-employment activity. Part of the reason for this finding is the lower density of population in RST areas, which implies smaller businesses in each community. For example, in a sparse market, there might be one self-employed plumber with one paid worker. In a higher density market, each self-employed plumber may have 4 or 5 paid workers. Thus, the smaller scale of businesses in RST areas is one reason for a higher ratio of self-employment to total workers (Rothwell, 2010).

    The share of the non-farm workforce that was self-employed was marginally higher in the late 1990s in both LUCs and in RST areas. However, these shares have been somewhat lower and essentially constant since 2001 (Figure 1). At the end of the 1990s, the difference in self-employment rates between LUC and RST areas was 4 percentage points with the share being higher in RST areas. By 2010, this difference had declined with RST areas having a 3-percentage-point greater share of their non-agricultural workforce.

    Table 1 Self-employment in Canada, 2010

    Figure 1 In 2010 in rural and small town areas, the share of the non-agricultural workforce that was self-employed was 3 percentage points higher than in larger urban centres
    Within RST areas, each Metropolitan Influenced Zone (MIZ) group reports a higher share of the workforce being self-employment, compared to LUCs (Figure 2). The exception is the RST Territories. The RST Territories are the areas outside the CAs of Whitehorse and Yellowknife. In 2006, 6% of the workforce in the RST Territories was self-employed. Part of the decline in the RST workforce share that was self-employed between 2001 and 2006 would be due to the decline in the number of self-employed farmers.

    Figure 2 A higher share of the workforce is self-employed in rural and small town areas (except in the RST Territories), Canada

    Self-employed farmers contribute significantly to the higher self-employment rates in rural and small town areas

    As noted above (Table 1), the higher self-employment rates in RST areas are due, in part, to the contribution of farming self-employment in census rural areas within each of the LUC and RST labour markets. Specifically,

    • within census rural areas in each of LUC and RST labour markets, the self-employment rate varies between 15% and 20% (again, with the exception of the RST Territories) (Figure 3); and
    • within population centres (with 1,000 or more population) in both LUC and RST labour markets, the self-employment rate is systematically lower, ranging from 9% to 12% (except in the RST Territories).

    Figure 3 Self-employment is higher in RST labour markets -- and is higher in census rural neighbourhoods within each type of labour market, Canada, 2006

    Within rural and small town areas, non-farm self-employment rates are higher in Strong and Moderate MIZ

    Even when employment on farms is factored out, non-farm self-employment rates in most MIZ groups are somewhat higher than in LUCs (Figure 4; see Figure 1 for the Canada trend). Note that non-farm self-employment rates are lower as one moves from Strong MIZ to 'more' rural MIZs. Only No MIZ and the RST Territories have a non-farm self-employment rate that is lower than in the LUCs.

    However, total self-employment is markedly higher in each MIZ area (except the RST Territories) due to the presence of farming self-employment (the top part of each bar in Figure 4). In No MIZ, farming self-employment is 9% of total employment, while in Moderate MIZ and in Weak MIZ, farming self-employment is 5% of total employment.

    Among all sectors in rural and small town Canada, agriculture has the largest number of self-employed individuals

    The ranking of industry sectors by the number self-employed in RST areas in 2010 is presented in Table 2, while Figure 5 displays the trends for non-agricultural sectors between 1996 and 2010 (Appendix Table A3 provides the detailed data). Several trends and patterns are worth pointing out:

    •  First, reflecting the long-term trend in farming, although agriculture remains the largest industry in terms of the RST number self-employed (141 thousand) (Table 2), there was a substantial drop between 1996 and 2010 (Appendix Table A3);
    • Construction is the second largest sector with 86 thousand self-employed in RST areas. It also showed substantial growth from 1996 to 2010. Most RST self-employed workers in construction are involved in the construction of buildings;
    • Three industry sectors report about 50 thousand self-employed in RST areas (wholesale and retail trade2, 57 thousand; other (personal) services, 55 thousand; and professional, scientific and technical services3, 45 thousand).

    The level of self-employment in the remaining industrial sectors is shown in Table 2 with historical details in Appendix Table A3.

    Figure 4 Strong MIZ has the highest share of the workforce that is non-farm self-employed and No MIZ has the highest share that is farm self-employed, Canada, 2006

    Table 2 Number and percent self-employed in rural and small town Canada, 2010

    Figure 5 Number self-employed in non-agricultural enterprises, rural and small town Canada, 1996 to 2010

    About 6% to 7% of all workers report their main job to be a paid job while, at the same time, they also report some non-farm self-employment income

    In Figure 4 above, we showed non-farm self-employment rates across the MIZ areas in the bottom part of each bar and the top part of each bar showed the farm self-employment rates.

    In Figure 6, we provide more details on the type of self-employment business. The bottom parts of each column show the share of individuals whose main job is self-employment. These individuals are classified as the combination of unincorporated or incorporated and with or without paid help. The sum of these four categories is equal to the bottom part of each corresponding column in Figure 4.

    The last category shown in Figure 6 (i.e., the top part of each column) represents the percentage of individuals who are paid workers in their main job but who, at the same time, also report some unincorporated self-employment income from operating a non-farm business (see the details in Appendix Table A4).

    Hence, Figure 6 shows the full range of non-farm self-employment activity rates, both for individuals whose main job is self-employment, as well as for those individuals who have a mixed type of employment (a paid job as well as some non-farm self-employment income). Across these geographic groups, 6% to 7% of all workers report a paid job as their main job but also report some non-farm self-employment income (i.e. the top part of each bar).

    Some points should be noted about Figure 6. First, most of the difference among types of regions is due to a different share of the labour force that is self-employed and unincorporated without paid help. This appears to reflect, again, the small scale nature of rural self-employment businesses. Second, across these geographic groups, 6% to 7% of all workers report a paid job as their main job but also report some non-farm self-employment income (i.e., the top part of each bar).

    The height of each bar in Figure 6 shows the non-farm self-employment activity rate4. The rate is highest in Strong MIZ and is lower as one moves to MIZ areas that are more 'rural'.

    In terms of impending retirement, within the group with a paid job as their main job but some non-farm self-employment income, we find a lower share in the 55 to 64 age group in each MIZ. For example, in weak MIZ, the share in the impending retirement group (aged 55 to 64) is 19%, compared with 20% to 24% among those with self-employment as their main job (Appendix Table A4.1).

    Is there an impending retirement of self-employed individuals?

    There has been a small continuous increase in the share of the self-employed who are aged 55 to 64 (Figure 7). This increase has matched the aging trend for the workforce as a whole.

    Most paid workers retire before or at the age of 65. Among self-employed workers, the median retirement age5 has been about 65 or 66 for men in recent years6. It has been marginally lower for women over the same period. Thus, among the self-employed, the target retirement age appears to be 65. So the focus on self-employed people expected to retire in the following 10 years should be on those aged 55 to 64.

    Figure 6 Strong MIZ reports the highest share of the workforce being self-employed with a non-farm enterprise, Canada, 2006

    Figure 7 Increase in the share of the workforce that is 55-64 years of age, Canada, 2006 to 2010

    To obtain an idea of the industry sector(s) where self-employment businesses will be subject to retirement pressure in the near future, we do two sets of analysis:

    • first, we document the industry sector in which the self-employed individual is operating his/her business;
    • then, only for the self-employment businesses in the sector, we rank the self-employed businesses in terms of the share of the self-employed in RST areas who are aged 55 to 64.

    If there is a high share of self-employed in the 55-to-64 age group, the self-employment businesses in the given sector would be expected to experience a relatively higher turnover in the number of owner-operators. In RST areas, this might mean that the business would close and the rural community would be deprived of the services provided by the business. Or, there would be an opportunity for individuals to become owner-operators of these businesses.

    Our classification of self-employment business by industry sector uses the most detailed description of businesses provided by the 2006 Census of Population, specifically, businesses coded to 4-digit NAICS (North American Industry Classification System) (Statistics Canada, 2007a). At this level of detail, there are many industry sectors for which there is only small number self-employed owner-operators in RST Canada.

    Given our focus on the self-employed aged 55 to 64, we have chosen to rank only those industry sectors within RST Canada with 100 or more self-employed who were in this age group7 in 2006. As a result, we are considering 128 4-digit NAICS sectors out of a total 307 sub-sectors coded with 4-digit NAICS codes.

    With our ranking, the top 6 industry groups with a higher expected rate of turnover due to retirement of self-employed owner-operators are:

    • self-employed individuals operating funeral homes (43% are aged 55 to 64, comprising 190 individuals) (Table 3);
    • self-employed individuals providing warehouse and storage services8 (43% are 55 to 64 – 100 individuals);
    • self-employed individuals manufacturing clay or brick products9 (40% are 55 to 64 – 170 individuals);
    • self-employed individuals providing educational support10 (39% are 55 to 64 – 115 individuals);
    • self-employed individuals operating private schools or boarding schools (36% are 55 to 64 – 240 individuals); and
    • self-employed individuals providing equipment wholesale services11 (36% are 55 to 64 – 140 individuals).

    Table 3 documents the top 50 sectors in rural and small town Canada in terms of the share of self-employed individuals expected to retire within the next 10 years. Note in almost every case, there are only a few self-employed in each industry group.

    Table 3 Top 50 industry sectors ranked by percent self-employed in rural and small town Canada who were 55 to 64 years of age in 2006 (for sectors with 100 or more self-employed who are 55 to 64 years of age)

    The RST sector with the largest number of self-employed approaching retirement is farming

    An alternative way to quantify the impact of an impending retirement of self-employed individuals in RST areas is to rank the sectors by the absolute number of self-employed individuals in the 55 to 64 age group (Table 4).

    This will indicate the magnitude of the training that may be required to take over such businesses or perhaps the magnitude of closure (or consolidation) of businesses in rural communities if these businesses were to close. The ranking is:

    1. Self-employed farmers: About 33,220 individuals were aged 55 to 64 in 2006, representing 23% of all self-employed farmers. This ranks 83rd in the list of sectors in terms of the rate of turnover expected due to retirement;
    2. Self-employed residential building contractors: About 4,105 were aged 55 to 64, about 19% of all self-employed contractors. This ranks 109th in the list of sectors in terms of the rate of turnover expected due to retirement;
    3. Self-employed providing services to buildings12: About 3,145 were aged 55 to 64, about 20% of all self-employed in this group. This ranks 105th among sectors in terms of the rate of turnover expected due to retirement;
    4. Self-employed automotive and maintenance operators: About 2,640 were aged 55 to 64, about 22% of all self-employed in this group. This ranks 89th among sectors in terms of the rate of turnover expected due to retirement;
    5. Self-employed general freight truckers: About 2,145 were aged 55 to 64, representing 20% of all self-employed in this group. This ranks 103rd among sectors in terms of the rate of turnover expected due to retirement;
    6. Self-employed accountants: About 2,115 were 55 to 64, about 28% of all self-employed accountants. This ranks 37th among sectors in terms of the rate of turnover expected due to retirement; and
    7. Self-employed fishers: About 2,050 were aged 55 to 64, representing 23% of all fishers. This ranks 78th among sectors in terms of the rate of turnover expected due to retirement.

    In the list of the top 50 in Table 4, only 6 sectors ranked in the top 20 when ranked by share reaching retirement age in 10 years. These 6 sectors are:

    1. Self-employed individuals providing traveler accommodation13, which ranked 10th in absolute numbers and 16th in terms of share of individuals aged 55 to 64;
    2. Self-employed individuals providing consulting services14 which ranked 13th in absolute numbers and which 20th in terms of the share of individuals aged 55 to 64;
    3. Self-employed in leasing and renting of real estate, 28th in absolute terms and 19th in terms of the share of individuals aged 55 to 64;
    4. Self-employed insurance agents, 31st in absolute numbers and 11th in terms of the share who are aged 55 to 64;
    5. Self-employed owner-operators of retail stores selling sporting goods, hobby supplies and musical instruments, 36th in absolute numbers and 15th in terms of share aged 55 to 64; and
    6. Self-employed individuals operating used merchandise stores15, 49th in absolute numbers and 7th in the share of self-employed aged 55 to 64.

    Table 4 Top 50 industry sectors ranked by number self-employed in rural and small town Canada who were 55 to 64 years of age in 2006 (for sectors with 100 or more self-employed who are 55 to 64 years of age)

    To summarize, in 2006, 22% of the self-employed in RST Canada were aged 55 to 64. When we ranked the industry sub-sectors of the RST self-employed, we found that the rate of expected retirement would be 35% or more among:

    1. funeral home operators (43%);
    2. warehouse operators (43%);
    3. manufacturers of clay and brick products (40%);
    4. educational counselling and testing services (39%);
    5. private and boarding school operators (36%); and
    6. wholesalers and distributors for businesses (35%).

    These are the type of RST self-employment businesses for which we expect a relatively higher rate of turnover of business owner-operators due to retirement.

    When we rank self-employment operators in RST Canada in terms of the number of self-employed aged 55 to 64, we are then focusing on the demand for training new entrants or the opportunity to take over a business from a retiring operator. The top 5 types of self-employed operators with this ranking are:

    1. farmers;
    2. residential building contractors;
    3. operators providing cleaning, landscaping and pest control services for buildings;
    4. garage or service station operators; and
    5. accountants.

    In each case, the share approaching retirement is less than for the overall workforce in RST Canada.

    Summary

    In 2010, there were 0.6 million self-employed people in rural and small town Canada, representing 21% of total employment.

    Farmers are a significant component of the self-employed, both in rural and small town areas and in the countryside within the commuting zone of larger urban centres.

    Among non-farm jobs, self-employment represents 17% of total employment in rural and small town areas and 14% of total employment in larger urban centres. Thus, rural and small town areas are relatively more intensive in self-employment activity, even when only non-farm self-employment is considered.

    Self-employment in construction and in professional, scientific and technical services has increased over time in rural and small town areas.

    Self-employment in farming and wholesale and retail trade businesses has decreased. However, over time there has been an increase in total employment in the wholesale and retail trade sector in rural and small town Canada, resulting from an increase in the number of paid workers.

    The median retirement age for the self-employed in Canada is 65 for men and marginally lower for women.

    In rural and small town areas, the share of the self-employed who would pass this milestone within 10 years (i.e. who are aged 55 to 64) was 24% in 2010, compared with 17% for salaried workers in rural and small town areas. Both of these shares have increased since 2006 as the overall labour force is aging.

    The rural self-employed with the highest share expected to retire in the next 10 years are operators of funeral homes (43%), operators of storage facilities (43%), clay and brick manufacturers (40%), educational and vocational counselors and testers (39%) and operators of private or boarding schools (36%). In each case, the absolute numbers were not large, fewer than 250 in each case for rural and small town Canada.

    The industry sectors with the largest absolute number of impending retirees of self-employed operators were farmers (33,300 or 23%), house contractors (4,105 or 19%), operators providing landscaping, cleaning of buildings and pest control services (3,145 or 20%), operators of garages or service stations (2,640 or 22%) and self-employed truckers (2,145 or 20%). In each case, the expected rate of turnover due to retirement is less than for all self-employed in rural and small town areas.

    Appendix tables

    Appendix A: Supplementary tables

    Table A1 Number of self-employed workers, Canada, 1982 to 2010

    Table A2 Number of self-employed in the experienced labour force by age and sex, Canada, 2006

    Table A3 Number self-employed in rural and small town Canada, 1996 to 2010

    Table A4.1 Number employed by class of worker, type of geographic area and age, Canada, 2006

    Table A4.2 Number employed with agriculture as the main job, by class of worker, by type of geographic area and by age, Canada, 2006

    Table A4.3 Number employed with a non-agricultural job, by class of worker, by type of geographic area and by age, Canada, 2006

    Table A5 Number and percent self-employment, Canada, 1996 to 2010

    Table A6 Industry sectors (at the level of 4-digit NAICS codes) ranked by the number of male self-employed workers in the experienced labour force, Canada, 2006

    Table A7 Industry sectors (at the level of 4-digit NAICS codes) ranked by the number of female self-employed workers in the experienced labour force, Canada, 2006

    Appendix B: Managers of smaller firms

    Table B1 Number of paid workers with a "management occupation" as the main job and employed in firms with 1-19 employees, Canada


    Notes

    1. For information on the size of farming activity within LUC labour market areas, see Lonmo (1999) and Statistics Canada (2007b).
    2. The number self-employed in wholesale and retail trade in RST areas declined in the 1996 to 2010 period - however, total employment (i.e. paid workers plus self-employed workers) has been increasing.
    3. The sector providing "professional, scientific and technical services" comprises establishments engaged in activities where human capital is the major input. The industries within this sector are each defined by the expertise and training of the service provider. The sector includes such enterprises as offices of lawyers, engineering services (including geophysical surveying and mapping), architectural services, advertising agencies, interior design, accounting services, management consulting, environmental consulting and veterinary services. Some specific groups with large numbers are "management, scientific and technical consulting services" and "computer systems design and related services."
    4. du Plessis (2004a, 2004b) and du Plessis and Cooke-Reynolds (2005) define a "self-employment activity rate" to be the sum of those with self-employment as their main job plus, for those with paid work as their main job, those with some unincorporated self-employment income from operating a farm or non-farm business.
    5. To define "retirement age," the Labour Force Survey asks people who are not working, and who have left their last job within the year prior to being surveyed, why they left this job. One of the response categories is "retired." The median retirement age is calculated from this variable (Bowlby, 2007).
    6. Based on the median retirement age of self-employed workers between 1977 and 2008. See Statistics Canada, Labour Force Survey, CANSIM Table 282-0051.
    7. The choice of "100" as a cut-off for our tables is arbitrary. Recall that the long-form Census of Population was enumerated for a 20% sample and thus an estimate of 100 self-employed would be based in a sample of 20 observations. In addition, for the policy concern of a possible impending high rate of retirement among self-employed business operators, it seemed less likely that policy would focus on industry sectors with less than 100 self-employed operators expecting to retire in the near future.
    8. NAICS 4931 "warehousing and storage" includes general warehousing, refrigerated storage, farm product warehousing (such as grain storage, potato storage and tobacco warehousing), automobile dead storage and lumber storage.
    9. NAICS 3271 "clay product and refractory manufacturing" includes the manufacturing of pottery, ceramic and structural clay products. Examples include China tableware, electrical insulators, pottery or stoneware, ceramic tile for floors or walls, bricks, drainage tiles and refractory cement and mortar.
    10. NAICS 6117 "educational support services" are enterprises primarily engaged in non-instructional services such as educational and vocational counseling and educational testing services.
    11. NAICS 4179 "other machinery, equipment and supplies wholesaler-distributors" includes enterprises wholesaling equipment, furniture and machines for business offices, beauty parlours, hotels, restaurants, dry cleaning and laundry establishments, school textbooks, equipment for architects and engineers, equipment for medical and dental offices, pleasure boats, garage and service station equipment, etc. (Statistics Canada, 2007a).
    12. NAICS group 5617 "services to buildings and dwellings" includes pest control services, janitorial services, landscaping services, carpet cleaning services and duct and chimney cleaning services, etc. (Statistics Canada, 2007a).
    13. NAICS group 7211 "traveller accommodation" includes hotels, motels, resorts, bed and breakfasts, cottages, cabins, etc. Note that in some provinces of Canada, one must provide hotel services to operate a bar or tavern and these establishments may be coded as a "hotel."
    14. NAICS group 5416 is "management, scientific and technical consulting services" and includes management consulting (strategic planning, financial planning, human resource policies, etc.), environmental consulting (planning for control of pollutants, toxic substances, etc.), agricultural consulting (agrology, agronomy, livestock consulting), etc. (Statistics Canada, 2007a).
    15. NAICS 4533 "used merchandise stores" includes stores selling antiques, used appliances, secondhand clothing, secondhand furniture, secondhand books, etc. (Statistics Canada, 2007a).
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