SELF - EMPLOYMENT AND THE 50 + POPULATION by Lynn A . Karoly and Julie Zissimopoulos RAND

The Public Policy Institute, formed in 1985, is part of Policy and Strategy at AARP. One of the missions of the Institute is to foster research and analysis on public policy issues of importance to older Americans. This paper represents part of that effort. The views expressed herein are for information, debate and discussion, and do not necessarily represent official views or formal policies of AARP or RAND. FOREWORD Although self-employment is an important work option for older Americans, it is a relatively understudied area. The leading edge of the baby boom is approaching retirement age. Two recent AARP public opinion polls found that baby boomers are very interested in starting their own business or becoming self-employed. This fact, coupled with evidence of rising rates of self-employment with age, suggests a need for a better understanding of who is self-employed at older ages and why. Transitions to self-employment have implications for the current financial well-being and the retirement preparedness of those nearing retirement. These transitions also have ramifications for overall retirement security because one-fifth of the aggregate income of Social Security beneficiaries derives from earnings from employment, and earnings are likely to differ for wage and salary workers and the self-employed. This report by Lynn A. Karoly and Julie Zissimopoulos of RAND is designed to fill an important gap in our knowledge about self-employed workers age 50 and above and the transitions to self-employment in middle and late life. The study, which was funded under contract from AARP to RAND, has three key objectives: (1) to describe overall self-employment trends in the U.S. population and among those age 50 and above; (2) examine the characteristics of middle-age and older self-employed persons and compare them with their wage and salary counterparts; and (3) estimate models of employment transitions to identify determinants of who becomes self-employed in later life. To accomplish this, the authors analyze two primary sources of data: the Current Population Survey (CPS) and the Health and Retirement Study (HRS). In 2002, the rate of self-employment for the workforce as a whole was 10.2 percent (13.8 million workers). The analysis by Karoly and Zissimopoulos reveals that self-employment rates are consistently higher among older workers than the workforce as a whole. In 2002, for example, CPS data indicate that 16.4 percent of workers aged 50-plus, but only 10.2 percent of the total workforce, were self-employed in incorporated or unincorporated businesses. In …