Self-Employment Is No Solution for the Older Unemployed 

A smaller share of older workers are officially looking for work. The unemployment rate for workers aged 55 to 64 was 3.6% in April, down 0.3 percentage points from March. Older men’s unemployment decreased from 4.0% to 3.8%, and older women’s unemployment decreased from 3.8% to 3.6%.

Older workers have lower official unemployment rates than the national average, but face stagnating wages, growing long-term unemployment, physically demanding jobs, and age discrimination. One widely-advocated solution is for the unemployed to create their own jobs by becoming self-employed.

But this is wishful thinking. The existing self-employed are workers who have, to a greater or lesser extent, chosen self-employment rather than entered it as a last resort. It does not follow that if the older unemployed attempt to become self-employed, they will succeed. Analysis of Health and Retirement Study (HRS) data, a nationally representative survey of older Americans shows:

1. Few unemployed workers over 55 enter self-employment – only 5.7% during the period 2010-2012.
2. The low rate of entry to self-employment likely reflects a lack of resources, rather than insufficient entrepreneurial zeal among older unemployed workers.

Median household-level financial assets of unemployed workers over 55 are only $2,000. In contrast, newly self-employed older workers have average financial assets of $25,000, and older employees $10,000. Unemployed workers are also less likely to have housing wealth to draw on. Only 71% of older unemployed workers are homeowners, compared with 87% of the newly self-employed and 83% of employees, and unemployed homeowners have less housing equity than the newly self-employed and employees. With only $2,000 to start a business and little collateral, the older unemployed are unlikely to be able to finance viable businesses. Instead, self-employment likely means taking insecure, low-paid work in the gig economy.

America’s older workers should be able to choose to leave the labor force after a lifetime of work. Policy proposals that call for cutting Social Security benefits by raising the retirement age leave people at the mercy of a labor market unfriendly to older workers. Guaranteed Retirement Accounts (GRAs) open a path to retirement security by providing all workers retirement savings plans with guaranteed growth.