Income and Labour Market Consequences of Business Failure

Technological advancements are expanding self-employment opportunities, but recent economic shocks have highlighted the risks and consequences of failure on the self-employed. Despite this, few studies have studied the income or labour market consequences of business failure in Canada. Using longitudinal data from the Canadian Survey on Labour and Income Dynamics (SLID) for 2005 to 2010, we examine the short-term labour market consequences and immediate income effects of business failure compared to similar wage employees who involuntarily lose their jobs. Perhaps due to financial pressures, own account (do not employ paid workers) unincorporated self-employed job losers are more likely to be employed one year post job loss, but less likely to work full-time, relative to wage employed job losers. Moreover, self-employment spells ending in failure are still a major predictor of working outside wage employment one year post job loss compared to similar wage employed job losers. We find that, relative to wage employed job losers, self-employed job losers experience larger reductions in weekly income immediately following job loss. Full-time own account unincorporated self-employed workers are especially at risk of income disruption due to business failure relative to similar full-time wage employed job losers. JEL Classification: J21, J22, J38, J48