A location-based analysis of self-employment among older people.

Robinson, Sherry ; Janoski, Walter

ABSTRACT

The number of people who are over 60 is growing rapidly. Even though they choose to retire from full-time jobs, many retirees are healthy enough to work and want to remain active. At the same time, retired people often find they would like additional supplemental income without returning to full-time work. One solution is self-employment. This could be especially true in rural areas where it may be more difficult to obtain jobs that suit retirees' needs. This paper examines the proportions of men and women in metropolitan, suburban and rural areas who claim themselves as retired, yet receive income from self-employment.

INTRODUCTION

The median age of the total population is increasing. Accordingly, once the oldest baby-boomers reach age 65 in 2011, the population will begin to age rapidly. The US Census Bureau predicts that between 2000 and 2040, the numbers of American 65 and older will more than double, to 77 million, while the number of adults in the prime working ages of 25 to 54 will increase by only 12 %. (Johnson, 2004, p. 48). By 2030, the proportion of people in the U.S. who are 65 and older is expected to increase from 13% to over 20% (Purcell, 2000).

As the number and proportion of older people is increasing, the traditional practice of completely retiring at age 62 or 65 is also changing. Some companies are encouraging early retirement by offering incentives that entice people to leave their career jobs, even if they would normally have continued to work. If they are active and in good health, many of these people then begin working with another employer or strike out on their own (Quinn & Kozy, 1996; Singh & DeNoble, 2003). This is especially true for retirees who find they need supplemental income. Because they live longer on average than men or do not receive sufficient benefits, women are 70% more likely to spend their retirement in poverty. In the over-50 age group, women make up 60% of the lower-income quartile (Hill, 2002, p. 40). Therefore, adequate income in retirement is more likely to be a an issue for women. This problem may be especially acute in rural areas where fewer jobs are available.

This study examines the proportions of people in rural, suburban and urban locations who are self-employed. The following section provides a background on the aging population that is retired or nearing retirement, and special problems and possible advantages associated with starting and conducting business in rural areas. Data from the March Supplement of the 2004 Current Population Survey are then analyzed by age, sex and location.

THE GOLDEN YEARS

Many people continue to work or return to work after initial retirement simply because they enjoy the activity of work (Sautters, 2005) and/or need supplemental income (Kirchhoff, 2005). Since 2001, the number of employed men over age 55 has increased 20% and the number of employed women over 55 has increased 26.3% (Kirchhoff, 2005). In fact, the proportion of people over age 65 who are employed is the highest in approximately 35 years. Improved health and well-being at older ages combined with increasing prices and an overall drop in the stock market (investments) have encouraged older people to continue working. The proportion of those in the 51-56 age group who say they plan to work after age 65 has increased from 26.3% in 1992 to 39.8% in 2004 (Kirchhoff, 2005), while a survey by AARP found that 80% of the baby boom generation plans to continue working after retirement, primarily because they will need the income (Fetterman, 2005). Working past traditional retirement age is a particularly good strategy for workers who will not receive retirement benefits from an employer (Block, Waggoner & Fetterman, 2005).

One reason these numbers have risen so dramatically is that the baby boom generation is reaching retirement age. This group expects that their golden years should provide opportunities to remain active and try new things, which could include starting a business they have thought about for a long time. In the past, middle-aged and older people have had higher rates of self-employment (Duchesne, 2002; Haider & Loughran, 2001; Karoly & Zissimopoulos, 2004), making the possibility that retiring baby boomers may try self-employment a very real one. In 2002, 5.6 million people over 50 cited self-employment as their primary occupation (Karoly & Zissimopoulos, 2004). Self-employment may be a particularly attractive option for people in rural areas where the choice of jobs is more limited.

SELF-EMPLOYMENT IN RURAL AREAS

The quantity and quality of jobs in rural areas have been seriously affected by problems such as sagging rural farm economies, increased foreign competition, and decreases in rural industries (Lichter, 1989). Economic decline has led many workers to migrate to urban areas, further decreasing the population and purchasing power in rural areas.

Many studies (Fendley & Christenson, 1989; Kale, 1989; MacKenzie, 1992; Mueller, 1988; Osborne, 1987; Small Business Administration [SBA], 2001; Tigges & Green, 1994; Trucker & Lockhart, 1989) show that rural areas are economically disadvantaged due to factors such as low levels of business development and limited work opportunities. Rural women in particular "have been an economically disadvantaged group historically" and face restricted employment opportunities (Lichter, 1989, p. 199, 200).

Several studies have shown that rural development often lags behind that of urban areas in terms of population, buying power, capital, entrepreneurial climate, innovation, support services such as health care, and well-developed electronic and transportation infrastructures, (MacKenzie, 1992; Mueller, 1988; SBA, 2001). Business services such as accounting, banking, advertising, and legal counsel may be difficult to locate, leading to higher fixed costs and greater difficulty competing (Osborne, 1987; Trucker & Lockhart, 1989; Fendley & Christenson, 1989; SBA, 2001). In addition, the merger of small rural banks with larger banks that are less willing to loan funds to small businesses can make it more difficult to obtain financing (SBA, 2001).

MacKenzie (1992, p. 92) states that "rural areas are seen by many as being on the fringe rather than a part of the mainstream of both the economy and society." Overall, the SBA (1999) reports that between 1990 and 1995, all industries did better in non-rural than in rural areas. One reason for this may be that rural companies tend to be smaller and have less income than those in metro areas (Henderson, 2002). Glancey (1998) adds that small business owners in urban areas may be more interested in growth whereas rural business owners may be primarily motivated by lifestyle. Kilkenny, Nalbarte and Besser (1999) state that a business owner may feel successful even with a low income if the quality of life in the community is high.

Indeed, entrepreneurship provides rural residents an avenue for financial improvement and independence without giving up their unique way of life (Tosterud & Habbershon, 1992). Using General Social Survey data, Hout and Rosen (2000) found that the sons of farmers (who naturally are located in rural areas), businessmen and professionals had higher rates of self-employment than did sons of clerical, retail, and manual workers. Clark and James (1992) found the rate of business ownership to be higher in non-metro areas with low populations. Some rural small business owners do not necessarily view their location as a hindrance, and even consider it advantageous (Jack & Anderson, 2002; Robinson, 2001; Tosterud & Habbershon, 1992). A study (Robinson, 2002) comparing business termination rates in metropolitan and non-metropolitan counties found that although business start rates were lower in rural areas, termination rates were equal or even lower in non-metropolitan counties.

Women with families often look to entrepreneurship in order to control their schedules and gain more control over their lives (Arai, 2000; Birley, 1989; Clark & James, 1992; Lombard, 2001; NFWBO, 1998a). This may be especially true in rural areas where there are likely to be fewer childcare options (Jack & Anderson, 2002; Tigges & Greene, 1994). Lichter (1989) concluded that in 1985 one-third of rural women were underemployed, meaning they were not able to find full-time work or a job paying adequate wages. Rural women were underemployed at a rate 38% greater than urban women, and 42% higher than rural men. It has been suggested that skilled rural women would make more money by working in managerial positions for employers, but because these jobs are not readily available or easily accessible, these women are motivated to start and operate their own businesses (Clark & James, 1992; Tigges & Greene, 1994). If women have become self-employed during their prime working years, they made decide to continue with their businesses even after they receive social security.

Self-employment seems to be a desirable an option for non-metropolitan residents despite the economic difficulties. This may become even more so for people who have reached the golden years of life and do not wish to work for a full-time employer, yet want to remain active and receive a supplemental income. This study examines the proportions of self-employed men and women in urban, suburban and rural areas. Special emphasis is given to the over 50 age groups.

METHODOLOGY, RESULTS AND ANALYSIS

Data regarding the number of working-aged self-employed people were obtained via Data Ferret from the March Supplement to the 2004 Current Population Survey and a random subset of the data for the entire nation was analyzed through the use of SPSS. Chi-square analyses were conducted on these data to determine if equal proportions of people in urban, suburban and rural areas were self-employed.

Table 1 presents the overall percentage of working-aged people in urban, suburban and rural locations. Chi-square analysis shows that among both women and men, the differences in the proportions of people in each location are statistically significant and are therefore unlikely to have occurred by chance. With both women and men, rural residents were the most likely to be self-employed, with rural men being 45% more likely than urban an suburban men to be self-employed, and rural women about 40% more likely than urban and suburban women to be self-employed. The proportions of urban and suburban men were equal, while suburban women were slightly more likely than urban women to be self-employed.

Because the population of interest was people in or near retirement age, those in age groups younger than 50 were not further examined. People as young as 50 were included because people taking early retirement could be in these younger age groups. In Table 2, the number and percentage of working-aged people is further broken down by age and sex, and the results of chi-square analysis for the entire age group are presented on the line labeled "both.". In addition, a chi-square analysis examining the proportions of self-employed people (data were filtered to include only those who were self-employed) by sex and location was performed, with the results presented on the line showing data for men.

Examination of the total proportions of self-employed people in urban, suburban and rural locations shows that in 4 out of 7 age groups, rural areas had significantly higher proportions of self-employed people. This trend was evident from age 50 through age 64, with the exception of ages 60-61 when the percentage for rural self-employed residents appeared to be higher, but lacked statistical significance. At age 65, the percentages became more similar overall, with greater differences evident among men. In the 70-74 age group, rural areas actually had the lowest proportion of self-employed people. However, in the age 75 and over group, rural areas again had a much higher percentage. These findings suggests that there are differences in the proportions of people who are self-employed in rural, suburban and urban locations.

Up until age 65, rural women, with the highest self-employment rates among women, tend to have roughly the same rates as urban men, who have the lowest rates until age 65. In all but the youngest group, chi-square showed no significant interaction between sex and location. Men's patterns varied after age 65, but in all ages, rural women tended to have the highest of women's rates.

Given these results, the researchers attempted to "work backwards" by beginning with the oldest age group and expanding the pool to include younger groups of self-employed people. For example, while the 75+ age group includes only self-employed people in that age group, the 70 and over age group includes the self-employed in both the 75+ age group and the 70-74 age group. As shown in Table 3, the percentage of self-employed people were compared by location, with women compared to women and men compared to men.

Among men, no statistically significant differences were seen in any of the categories that included age 62 and older. However, the differences among women were evident in all age groups, with rural women always having the highest percentage of self-employed people. This would seem to suggest that as men grow older and assumedly retire, location-based differences are reduced later in life. Rural women, on the other hand, continue to be self-employed at higher rates than their urban and suburban counterparts. In fact, the biggest differences are evident in the oldest groups and the differences decrease as younger and younger people are included in the pool. Given the very high percentages of rural women who are self-employed at older ages, it is possible that these women are starting, or at least maintaining, their businesses as long as possible. It should be noted that the highest age groups in this data file contained very few people, but these findings indicate that is an area that should be investigated in future research.

Another problem with the above data is that is not possible to determine which people are retired and at what age they left work. Table 4 shows the results of a chi-square analysis conducted on a data set composed of people who receive social security because they are retired, yet still receive income from self-employment. This could mean that they have declared themselves retired because they have reached the age to receive social security, even though they continue to work in their own business, or perhaps they receive income from a business that they have passed on to the next generation.

Again, differences were not found among men, but rural women were 43% more likely than their urban counterparts and 77% more than their suburban counterparts to be receiving self-employment income in addition to social security. It is important to note that the overall percentages of self-employed people increase dramatically among this group, as compared to the proportions of all self-employed people presented in Table 1. This is logical considering the general rise in self-employment percentages evident as age increases, as shown in Tables 2 and 3.

It was not possible to break these data down by age, so these numbers could include those who have chosen to take social security at age 62 or 65. According to current laws, people who wait until they are 65 1/2 before they retire will not have their social security benefits reduced regardless of how much they earn, whereas people who take social security at age 62 have their benefits reduced by $1 for every $2 earned about $12,000 (Block et al., 2005, p. 7B). People who wait until age 70 to claim social security benefits will receive higher benefits than those who claim it at age 65. In turn, the benefits of people who retire at age 62 are reduced even more. People born after 1959 must wait until age 67 to receive full benefits (Block et al., 2005). This system encourages people to continue to work (unless they have retired before age 65). As the age limit for full benefits rises, more people are likely to continue to work well into their 60s.

CONCLUSION

By 2008, the first wave of America's 79 million people in the baby boom generation will reach age 62 when they are eligible to retire and receive reduced social security benefits (Fetterman, 2005). As the numbers and proportions of older people in the U.S. population increases dramatically in the coming years, how people spend their days and support themselves will become more and more important to society. Rising costs along with the increasing number of years that people spend retired mean that older people will need more money in their golden years than did their predecessors. Self-employment may be an important way for seniors to earn supplemental income while not working in full-times jobs for employers.

This is especially true for women, who have longer lifespans in general. A large percentage of women end up in poverty. The results of this study indicate the rural women are more likely than women in other locations to be self-employed. One reason for this may be that rural women, who have higher levels of self-employment than other women at almost all ages, need to keep their businesses because they outlive husbands and need the extra income. It is also possible that they enjoy their jobs and want to continue to work as long as possible. Future research should examine the retirement intentions of self-employed rural residents, especially women, to determine if they are more likely to plan to continue in their own businesses in their "retirement" years.

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Sherry Robinson. Penn State University Walter Janoski, Penn State University

Table 1: Percentage of People Who are Self-employed by Sex and Location

Sex Urban Sub. Rural Chi-square

Men 8.4 8.4 12.2 .000 *
Women 6.0 6.3 8.5 .000 *

Table 2: Self-employed People by Age and Location

Age Sex Total Self- Urban
 employed

50-54 Both 8183 939 8.8%
 Men 587 10.0
 Women 352 7.7

55-59 Both 5590 723 10.0
 Men 446 11.5
 Women 277 8.2

60-61 Both 1604 202 9.2
 Men 125 12.0
 Women 77 6.3

62-64 Both 1420 212 9.1
 Men 135 11.5
 Women 77 6.7

65-69 Both 1353 217 15.0
 Men 148 21.3
 Women 69 8.8

70-74 Both 577 104 21.8
 Men 64 24.7
 Women 40 18.1

75+ Both 437 84 12.1
 Men 56 16.1
 Women 28 8.1

Sex Suburban Rural Chi-square
 sig.

Both 9.4% 13.1% .000 *
Men 11.0 16.6 .009 *
Women 7.5 9.0

Both 10.6 14.2 .000 *
Men 11.9 16.3 .931
Women 9.0 11.8

Both 10.6 13.7 .07
Men 12.4 14.7 .848
Women 8.6 12.4

Both 12.3 16.9 .002 *
Men 14.8 21.1 .947
Women 9.4 12.7

Both 12.6 14.6 .464
Men 16.7 17.6 .437
Women 7.7 11.3

Both 13.4 12.9 .027 *
Men 16.7 9.9 .073
Women 8.9 17.2

Both 11.8 22.8 .005 *
Men 15.1 24.8 .937
Women 7.9 19.8

Table 3: Comparison of Location Among the Self-employed by Age and Sex

Age Sex Urban Sub.

50 and over Men 12.2 12.3
 Women 8.0 8.2

55 and over Men 13.6 13.3
 Women 8.3 8.8

60 and over Men 16.1 14.8
 Women 8.4 8.6

62 and over Men 17.7 15.8
 Women 9.3 8.6

65 and over Men 21.3 16.4
 Women 10.8 8.0

70 and over Men 21.3 16.1
 Women 13.4 8.5

75 and over Men 16.1 15.1
 Women 8.1 7.9

Sex Rural Chi-square sig.

Men 16.8 .000 *
Women 11.1 .000 *

Men 16.9 .001 *
Women 12.6 .000 *

Men 17.5 .000 *
Women 13.3 .000 *

Men 18.6 .275
Women 13.6 .003 *

Men 17.4 .157
Women 14.2 .010 *

Men 17.1 .377
Women 18.4 .015 *

Men 24.8 .140
Women 19.8 .031 *

Table 4: Percentage of Retired People Who Are Also Self-employed

Sex Urban Sub. Rural Chi-square

Men 23.9 17.8 18.6 .145
Women 11.9 9.6 17.0 .007 *