Push or Pull: What Explains Growing Entrepreneurship Among Older Households?

Abstract

Older households need to save more money for retirement, possibly by working longer. But, the same labor market pressures that have made it harder for people to save, such as increasingly unstable labor markets, have also made it more difficult for people to work longer as wage and salary employees. Self-employment hence may have become an increasingly attractive alternative option for older households. Entrepreneurship among older households has indeed grown faster than wage and salary employment, especially since the late 1990s. But, this growth, rather than reflecting rising economic pressures, may have been the result of growing financial strengths – fewer financial constraints and more access to income diversification through capital income from rising wealth. Our empirical analysis finds little support for the hypothesis that growing economic pressures have contributed to increasing entrepreneurship. Instead, our results suggest that the growth of older entrepreneurship is coincident with increasing access to income diversification, especially from dividend and interest income. We also find some tentative evidence that access to Social Security and other annuity benefits increasingly correlate with self-employment. Greater access to interest and dividend income follows in part from more wealth and improved access to Social Security may reflect relatively strong labor market experience in the past.