The skills once associated with running a business, like problem solving and interpersonal ability, now attract higher salaries in wage jobs. e61 Institute research shows why fewer Australians are choosing to go it alone.
What’s happening: New research from the e61 Institute shows self-employment in Australia has fallen to its lowest level in two decades, dropping from 20 per cent of employment in 2002 to just 14 per cent today. The decline is most pronounced among sole traders and employing small businesses, and is driven by the growing appeal of wage jobs rather than a broad retreat from entrepreneurial activity.
The share of Australians choosing to work for themselves has fallen to its lowest point in 20 years, with new research from the e61 Institute pointing to a fundamental shift in how Australians are weighing up employment against self-employment.
The research, which draws on household surveys and administrative business registers, shows the self-employment rate dropped from a peak of 20 per cent in 2002 to just 14 per cent of employment today. Sole traders fell from 12 per cent to just under 9 per cent over the same period, while employing businesses dropped from 7 per cent to less than 5 per cent.
A 20-year slide
The scale of the decline is significant. At its 2002 peak, one in five working Australians was self-employed. Today that figure is closer to one in seven, a shift that represents hundreds of thousands of workers who in an earlier era might have gone out on their own but are instead choosing the stability and benefits of wage employment.
Business creation also declined over the same period, the research found, but mostly among unincorporated businesses such as sole traders and partnerships. Incorporated businesses, that is companies, experienced a smaller decrease, suggesting the structural shift is concentrated in the smallest and most informal end of the business population.
Who is walking away and why
The e61 Institute’s research is careful to identify what is actually driving the trend. The decline is not a story of entrepreneurial retreat. It is a story of changing incentives.
Rachel Lee, Research Economist at the e61 Institute, points to the growing competitiveness of wage jobs as the central factor. “Skills that were once closely associated with running a business, such as problem solving and interpersonal skills, now attract higher salaries in wage jobs while benefits like superannuation and paid leave have also made wage jobs more attractive and financially secure,” Lee said.
The decline is particularly pronounced among managers and professionals, the research found, consistent with the argument that high-skill workers are increasingly choosing wage employment because the financial returns have converged with or exceeded what self-employment offers, without the accompanying complexity and risk.
“Fewer people are running employing small businesses as wage jobs become more attractive and predictable, while the costs and complexities of setting up a business that hires and manages employees have risen,” Lee said.
Not a productivity crisis
The research is equally careful about what the numbers do not mean. A falling self-employment rate is not automatically a signal of weaker economic dynamism or declining productivity, the e61 Institute cautions.
Dr Gianni La Cava, Research Director at the e61 Institute, makes the distinction clearly. “A fall in employing small businesses may matter for pathways into hiring and local job creation, but it does not mechanically imply weaker productivity growth,” he said. “If activity reallocates toward more capital-intensive or scalable companies, aggregate productivity growth could remain the same or even increase.”
The more useful policy question, he argues, is not how to lift self-employment in aggregate but how institutions shape entry, hiring and growth across different organisational forms within the economy.
What policy could do
The research points to several areas where policy settings may be contributing to the decline and where reform could support business dynamism without distorting the labour market.
Reducing unnecessary regulatory friction that discourages small firms from hiring is one area the research highlights, including fixed compliance, payroll and workplace obligations that weigh more heavily on smaller operators than on larger ones. Ensuring tax and transfer settings do not distort occupational choices is another.
For small business owners and policymakers alike, the e61 Institute’s findings are a prompt to ask sharper questions. If the pipeline of people choosing to start and run businesses is narrowing, and if the costs and complexities of employing others are part of what is driving that, the response requires more than encouragement. It requires a careful look at whether the system is making the choice harder than it needs to be.
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