Trying to understand the self-employment phenomenon

Chalk this one up as another on the wish list of research areas for me.   Why after 30 years of massively expanding government efforts to promote entrepreneurship has the percentage of self-employed persons in Atlantic Canada remain essentially flat (as a percentage of total employment).  New Brunswick has witnessed dozens of government programs to promote starting your own business from ACOA to BNB programs, to CBDCs to SEED, to youth entrepreneurship, female entrepreneurship, unemployed person entrepreneurship, etc. and yet we are still the second last in Canada with an essentially flat growth rate.

Why are the richer provinces and those with the expanding economies more likely to have seen a rapid expansion of self-employment over 30 years.   Saskatchewan and Alberta are anomolies here but it is fairly obvious that this is the impact of the decline in small farming in those provinces.

I don’t have the answers to this.  My suspicion for years has been that if you want to grow a healthy small business environment you need to have a relatively strong percentage of larger firms.  New Brunswick has the second lowest percentages of firms with over 100 employees among the provinces in Canada.  I think we have not explored the relationship between big and small firms in New Brunswick – the supply chains, the inter-relationships,  the incubation of new entrepreneurs, etc.   We know that a large manufacturer, for example, will have dozens if not several hundred local, small suppliers.  If you don’t have the large manufacturer, the small firms in a place like New Brunswick have to try and develop markets outside the province which is far harder.

Self-Employed as a Percentage of Total (1976 & 2009)

 

1976

2009

Percentage Point Change

Canada

12.2%

16.0%

3.9%

Newfoundland and Labrador

12.0%

9.6%

-2.3%

Prince Edward Island

20.0%

14.7%

-5.3%

Nova Scotia

10.6%

13.4%

2.8%

New Brunswick

10.6%

11.7%

1.1%

Quebec

10.0%

14.7%

4.6%

Ontario

10.5%

15.7%

5.2%

Manitoba

13.9%

13.8%

-0.1%

Saskatchewan

29.2%

19.1%

-10.1%

Alberta

18.1%

17.7%

-0.4%

British Columbia

12.0%

19.7%

7.8%

Source: Statistics Canada. Table 282-0012 – Labour force survey estimates (LFS), employment by class of worker.  Self-employed is defined as anyone that works for themselves ranging from the one person firm to the owner of a large firm.

This entry was posted in Uncategorized. Bookmark the permalink.

10 Responses to Trying to understand the self-employment phenomenon

  1. mikel says:

    It’s true that SOME large companies, maybe even most, will have ‘hundreds of suppliers’-although most of those suppliers may not be local. In New Brunswick you can’t get away from the fact that both McCains and Irvings got their success from being ‘vertically integrated’. So while Irving may have hundreds of suppliers, many of those will be other Irving companies.
    I will add to that NB’s poor educational system. While its true that an entrepreneurial class MAY develop because of a local large employer, I’ll again argue that that isn’t the most desirable scenario. Miramichi had a couple of large employers who supported local small businesses, and once those very few large employers close down-so too do the local suppliers.
    That’s a pretty dangerous way to set up a local economy. Even here in Waterloo we are not immune. While the region brags about its economy, the fact of the matter is that it is simply a fluke that RIM developed here, and if RIM ever closed, much of the local knowledge economy would be gone. Certainly not ALL, because as little as six years ago they were laying off people, but the region has slowly been turning abandoned manufacturing plants into office space, and if RIM closed, it would be tough to fill the 20 or more buildings that they own.

    This is why I was adamant about the blog yesterday, because it is education where the OECD says Canada is lagging. That a dirt poor country like Cuba can have full literacy, in fact even Venezuela is now approaching full literacy, and yet a fully developed first world, freely trading economy like Canada has one of the most absymally low rates in the industrial world.

    Since its not mentioned here I’ll mention the CBC story about a meagre investment from ACOA in BioAtlantech. If you want to see the poor development of industry, go check out BioAtlantech. Only about two companies are actually in the ‘research’ department-I’m not including places like Cooke Aquaculture who are primarily resellers and processors of stock.

    And again, you want a small business? Go and develop an add on program to facebook. Go develop a Google tie in. Go and develop a video game for the Wii. Go make an app for an iphone or blackberry. If Canada is saturated, go develop one in chinese, or hindi, or arabic. The possibilities for small businesses are unlimited, yet how many of the above businesses do you hear about in NB? That every student has a computer and doesn’t even know how to program it is an embarrassment of our educational system. I do work at a barn with a lot of kids, and they still focus on subjects where most kids would be hard pressed to find a job.

    To REALLY develop that would be quite easy, granted, making a fortune off an app isn’t as easy as it sounds. But at least its something. More importantly, at the very least these skills can be used in other areas as well. The repercussions of NOT doing that are painfully obvious. Over at the CBC is a story about the residential tenacts act and one girl talks about what its like living in a house with eight underemployed, over intoxicated guys. Those are stories that don’t get out there much, and aren’t even mentioned when discussing the ‘problems’ that Alward has to resolve.

  2. I would think that the decline of the family farm and the fishing industry in NB which I believe are largely self-employed plays a factor here.

    Perhaps the conservative culture of low risk is also to blame.

  3. I think these are good points but someone should do the analysis. I, too, think there is a culture of low risk in New Brunswick but there are likely ways we could try and quantify this stuff.

  4. mikel says:

    Keep in mind that while its low, it has INCREASED since 1976. I don’t know about fishing but NB has one of the most corporatized farming industry in the country, the number of family farms has plummeted. However, the number in the chart has increased, so obviously the silver bullet lies elsewhere.
    Saskatchewan has a pretty rapidly growing economy, so I think a 10% decrease is more than an anomoly. In 2009 is when the bubble burst, particulalry in ontario, so that chart may be a bad measure. What if during ONE year, 2009, the increase was 7.8%, but the year previous saw a decrease?
    Is it a percentage of TOTAL employment, so if total full time employment fell, the percentage would go up even though no more self employed people existed.

  5. richard says:

    “That’s a pretty dangerous way to set up a local economy.”

    But that is the basis for most economies, the large drivers. The problem in NB has been the lack of turnover in the large drivers – when one fails, there is no one else to pick up the slack.

    We need to work on ways to attract more economic drivers. I’d pick investment in R&D as one method for doing that; this has the advantage of also encouraging high-wage SMEs as well. A few of these might grow into larg outfits.

    As to why there are fewer self-employed small business operators, I think its the lack of large outfits coming into the province. Most of these small outfits service larger outfits and their employees.

  6. mikel says:

    “But that is the basis for most economies, the large drivers”

    How do you define an ‘economy’? Are you talking about a ‘region’? In high tourist areas this is not true. In agricultural it depends. Which is better, a large corporation like McCain owning much of the farm land or else small farmers? Small farmers may use the same number of suppliers, and would be less likely to outsource to China because they don’t need as much as a large supplier.

    Same in fishing. You can have a large number of fishing operations, or one corporation controlling it all. What happens historically is that a large player takes over the market, then it becomes a fait d’accompli and over time it becomes a ‘local myth’ that such companies are NEEDED because of how that regionally economy operates. And of course we now know the problem when those companies become ‘too big to fail’.

    Of course its odd that Richard would pick out investment in R&D. You can read my comments on the ACOA funding announcement at the CBC website, but its worth pointing out that about the ONLY R&D biotech success story has a grand total of NINE employees. I don’t know about Richard’s work, but my wife does cancer research with one of the most successful scientists in the country and their human clinical trials are about to begin (much like the cancer research company mentioned at BioAtlantech) and they have a grand total of about TEN employees (not counting the executives, most of whom are american and in New Jersey). As any scientist knows, most expertise is not available at one firm, so any firm’s investment dollars is typically spread around to various research partners.

    Notwithstanding the contradiction, I agree with Richard and would love to see a real investment in scientific research.

    As for the final point above, we know very little about self employment in Canada, let alone NB, so we can’t really say with ANY kind of assurance what “most” of these small outfits do. Self employment is different than a ‘small business’, its only the OWNER who is ‘self employed’, and Statscan makes a special point about ‘own account self employed’ which are one person operations, and I suspect are very unlikely to be ‘servicing’ larger ‘outfits’-depending of course how you define it. Is a hair stylist considered to be ‘servicing’ a larger outfit because they service their employees?

    Either way, for more info, here’s a link on “self employment in the downturn”:

    http://www.statcan.gc.ca/cgi-bin/af-fdr.cgi?l=eng&loc=2010103/pdf/11138-eng.pdf

    What would also be an interesting study is to see whatever happened to all of those FatKat employees. Did they all leave the region, are any doing contract work while still living in Miramichi? Did any of them start a small business?

  7. MicCain says:

    Who’s doing the best job when it comes to fostering growth? Utah, according to our fifth annual look at the Best States for Business. The Beehive State captured the top spot in our rankings for the first time, after a four-year run by Virginia at the head of the list.
    Utah’s economy has expanded 3.5% annually over the past five years, faster than any other state except North Dakota. This is three-and-a-half times faster than the U.S. as a whole. Total employment in the U.S. has shrunk over the past five years, but in Utah it increased 1.5% annually, fourth-best in the nation. Household incomes have surged 5% annually, which is tops in the country and twice as fast as the national average.

    “We have a fiscally conservative government where we are trying to keep government off your backs and out of your wallet. We want the free market do what it does best,” says Utah Gov. Gary Herbert, a Republican running for a full term this year after taking over the job in August 2009, when then Gov. Jon Huntsman was appointed U.S. ambassador to China.

    For labor supply we consider the education of the adult population, net migration into/out of the state as well as projected population trends.

    Utah lowered its corporate tax rate from 7% to 5% in 2008, to the delight of businesses. The rate is now one of the lowest in the country. The regulatory climate is also pro-business, with the Pacific Research Institute rating Utah second-best in the regulatory component of its U.S. Economic Freedom Index. “We want to make sure we don’t have any nonsensical regulations that inhibit the private sector from expanding and having a profitable bottom line,” says Hebert.

    Other factors the state have going for it include energy costs 35% below the national average; an educated labor force, with 90% of residents holding a high school diploma (and 29% a college degree); a great quality of life with low poverty rates; a healthy populous; and ample recreational opportunities. Utah boasts a triple-A debt rating from Moody’s ( MCO – news – people ), S&P and Fitch. Earlier this year Forbes crowned Utah the country’s most fiscally fit state government.

  8. MicCain says:

    Bringing up the rear this year is Maine, which replaced No. 49 Rhode Island at the bottom of our rankings. Growth prospects in Maine have deteriorated relative to the rest of the country. Job growth is expected to increase 1.3% annually over the next five years–one of the worst forecasts in the country. The state has endured a rash of business closings the past three years as well.

  9. mikel says:

    That’s ‘interesting’, but we are talking about self employment, not state economies. And the parrallels of the US are VERY different than Canada. Utah has easy access to US markets, canadian firms, despite whats been said about free trade, does not.

    In the US you have such a massive economy that it regularly ‘shifts around’ to the benefit of one state or another, and then will shift around again when another state changes its policies or some other variable becomes important (so high growth is seen in Louisiana because New Orleans has privatized its educational workforce and needs construction).

    Its worth noting that even New Brunswick, until recently, had a ‘triple a’ rating from moody’s, and much of its regulatory environment is SO friendly to industry that for resource industries its ranked higher that military states like Columbia.

    What’s interesting about Utah is that if you look at the states largest employers MOST of them are endemic to the state-they are companies that have started in the state and have stayed in the state. I suspect more of that is cultural rather than all those factors listed above. It’s a mormon state and a lot of its population no doubt stays local because of that. So you can look at something like its largest employer-which is a state credit union. Can you even IMAGINE a culture in New Brunswick that would put its priorities into the credit union rather than the Royal Bank?

    So all of that is not particularly helpful here, but its interesting. Keep in mind that ‘growth’ may simply mean the economy was disfunctional before, and is catching up-the fact that the leader was North Dakota is telling. And of course in Canada the most growth is probably Newfoundland,but there aren’t a lot of people out west saying “we’ve really got to copy Newfoundland’s policies”-particularly with Danny Williams in charge.

  10. richard says:

    ” but in Utah it increased 1.5% annually”

    I call ‘cherry-picking’. Most of the US is in economic free-fall (largely because of the Republicans people in Utah love to vote for). If you go back, say 20 years, and look at data from 1990 to 2000, how do the states rank?

Comments are closed.