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Entrepreneurship is declining in Canada as economic pressures spur a drop in the self-employment rate, according a new report from RBC Economics.
The uncertainty of the pandemic, strong labour markets and soaring inflation “have sped up a decades-long decline in the self-employment rate,” according to the research published on Thursday.
These conditions have made entrepreneurship less enticing for Canadians, RBC’s report said, with the self-employment rate hitting 13.1 per cent this year, down from around 17 per cent pre-pandemic.
Higher hourly wages amid strong labour market conditions and work from home arrangements are likely factors behind the trend of fewer workers choosing to start their own businesses or leave their employers, the report said.
“An employee working in professional, scientific, and technical services earns 20 per cent more per hour (on average) than a self-employed worker in the same sector,” Cynthia Leach, assistant chief economist of thought leadership at RBC, wrote in the report.
“Employers are also offering more flexible working arrangements previously only available to the self-employed.”
The research also showed that self-employed workers earn 59 cents for every dollar earned by employees.
Higher-potential self-employment ventures are those that employ at least one (other) worker, and as such are considered businesses, the report noted. It highlighted data showing that 13 per cent of Canadian workers are self-employed, but only four per cent had employees as of 2022.
The country’s aging population is also contributing the decline in business owners, the report said, making the case that as more Baby Boomers retire, Canada is slated to see a higher number of small business exits.
The country’s immigration push is unlikely reverse the trend, the report said, because the majority of new immigrants are younger in age, and self-employment is less attractive for younger workers.
COST OF LIVING CHALLENGES
Canada’s lack of housing affordability and high cost of living likely make paid employment a more attractive option, as small businesses owners come up against more challenges, the report said.
“These businesses face higher rents, higher capital costs, and must pay higher wages while consumer activity wanes,” it stated.