A Balanced Look at Self-Employment Transitions Later in Life

Abstract

After a demographic holiday that lasted nearly two decades, America is now showing signs of societal aging. Between 1990 and 2010, the percentage of the population aged 65 and over increased by only four tenths of a percentage point, from 12.6 to 13.0 percent (Hetzel & Smith, 2001; Werner, 2011). Since 2010, however, this percentage has increased from 13.0 to 14.1 percent and, in just 6 years, will rise to 16.8 percent (Ortman, Velkoff, & Hogan, 2014; U.S. Census Bureau, 2014). By 2030, approximately one in five Americans (20.3%) will be aged 65 or older. We are in the beginning stages of a rapidly aging society. The strains of societal aging are already apparent. Since 2010, the Social Security program’s (noninterest) revenues have been insufficient to cover outlays (Board of Trustees of OASDI, 2013; Table VI.A1) and, although unsupported in the economics literature, talk about older workers stealing jobs from younger ones is often reported in the popular press (Cahill, 2011; Dhanjal & Schirle, 2014; Gruber, Milligan, & Wise, 2009). In recent years, economic growth has stagnated and the labor market has failed to produce sufficient employment opportunities for younger workers (Congressional Budget Office, 2014). One partial solution to the strains of an aging society is continued work later in life (Munnell & Sass, 2008), and self-employment is one way that some older Americans have chosen to remain in the labor force. The individual and societal benefits of continued work are straightforward: each additional year that retirement is delayed is one additional year of earnings and possible savings and one fewer year that assets are spent down. Further, continued work later in life has been shown to maintain or improve the physical and mental health of older workers (Wang, 2007; Wink & James, 2012; Zhang, Wang, Liu, & Shultz, 2009). Looking ahead to the increasing effects of societal aging and a challenged labor market, and with the perception of intergenerational job competition, is self-employment a partial solution to both societal aging and a stagnant economy? In this brief article, we document some of the policy issues surrounding transitions into self-employment later in life.