Push or Pull

Purpose of the Study

Amid insufficient retirement savings and the growing need to work longer, it is important to understand why self-employment, especially entrepreneurship, has grown among older households. Older households may have been pushed into entrepreneurship by the growing risks of wage-and-salary employment as wages and jobs have become less stable. Alternatively, older households may have been pulled into entrepreneurship as the associated risks have declined, for instance, due to greater opportunities to diversify income away from risky business income. We examine the economic causes of the rise in entrepreneurship among older households.

Design and Methods

We use summary statistics and multinomial logit regressions to analyze the link between economic pressures in wage-and-salary employment, financial strength of entrepreneurship, and the presence and change of entrepreneurship among older households—aged 50 years or older. We use household data from the Federal Reserve's Survey of Consumer Finances from 1989 to 2013.

Results

We find little support for the claim that increased economic pressures are correlated with rising entrepreneurship. Instead, our results suggest that the growth of older entrepreneurship is coincident with increasing access to dividend and interest income. We also find some evidence that access to Social Security and other annuity benefits increases the likelihood of self-employment.

Implications

Entrepreneurship among older households increasingly correlates with income diversification. Policymakers interested in encouraging more entrepreneurship among older households could consider increased access to income diversification through social insurance.