The Dynamics of Self-Employment in Australia and the Role of the Solo Self-Employed

Abstract

A common belief held by policymakers is that the self-employed are a vital element of well-functioning economies. They promote economic growth, technological innovation and job creation. Yet, descriptive evidence across multiple industrialised economies concludes that relatively few self-employed workers create any jobs. Most self-employed workers do not hire any employees and are known as the solo self-employed. Not much is established about the role the solo self-employed have in job creation: Do they act as a more flexible form of employment and/or is solo self-employment a stepping-stone to job creation as an employer? This thesis aims to investigate the dynamics of self-employment in Australia. It uses individual-level data from the Household, Income and Labour Dynamic in Australia (HILDA) Survey from 2001 to 2016, where initial statistics support the notion of the solo self-employment stepping-stone effect. The statistics also show a declining trend in employership and solo self-employment rates and that, at most, half of the employers survive past their initial year in employership.

I consider three key questions regarding the Australian self-employed. The first explores the idea of solo self-employment being used as a device to reveal one’s own ability to be self-employed. If true, then being solo self-employed increases the individual’s probability of becoming an employer, more so than any other employment state. This assertion is empirically tested, and the results suggest that it is true. However, the results also suggest the difference, while significant, is minor when compared to the observable rates of transitions into employership. The second question investigates what the skill-based determinants of employership survival are. It is possible that high rates of employership exits are because of a mismatch between employership skill requirements and individual expectations. Using survival analysis techniques, I find experience in occupations that treat cognitive, resource management or pattern recognition skills as important determinants of employership survival. The third question examines if the declining rates of Australian self-employment represent labour market failures: are there barriers hindering entry into self-employment? I find employers and solo self-employed workers have significantly higher job satisfaction scores than wage/salary employees. I treat this as evidence for self-employment entry barriers as they should be similarly satisfied in a labour market with free entry.