Something different, from the always-interesting e61 Institute.

Self-employment has fallen sharply to a 20-year low, according to new research that suggests a substantial shift in how we work.

In 2002, the peak, one in five Australians were self-employed.

From that 20% level it’s fallen to just 14% of employment today.

So-called ‘wage jobs’, with higher pay and benefits like superannuation, are more appealing.

Sole traders dropped from 12% in 2002 to just under 9% today Employing businesses fell from 7% in 2002 to less than 5% today

Drawing on the ABS longitudinal labour force study and the epic Household Income and Labour Dynamics in Australia (HILDA) study, the research found the decline was reflacting changing labour market incentives “rather than a broad retreat from entrepreneurial activity”, with high-skill workers increasingly choosing wage jobs that offer higher returns and greater income security.

Here’s e61 Research Economist Rachel Lee:

“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.

“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.”

In a release alongside the research, the institute said business creation also declined over the same period, but mostly among unincorporated businesses such as sole traders and partnerships, rather than incorporated businesses (companies), which only experienced a smaller decrease.

The self-employment dive is particularly pronounced among managers and professionals, consistent with the growing appeal of wage employment incentives.

Importantly, the research cautions against interpreting falling self-employment as a simple decline in entrepreneurial activity.

Why? Here’s e61 Research Director Dr Gianni La Cava:

“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.

“If activity reallocates toward more capital-intensive or scalable companies, aggregate productivity growth could remain the same or even increase. The relevant policy question is not how to lift self-employment in aggregate, but how institutions shape entry, hiring and growth across organisational forms within the economy.”

Potential policy solutions that would support business dynamism, include:

fixed compliance, payroll and workplace obligationstax and transfer settings that do not distort occupational choices