Does Self-Employment Increase the Economic Well-Being of Low-Skilled Workers?

Magnus Lofstrom, Public Policy Institute of California (PPIC)

Low-skilled workers do not fare well in today’s skill intensive economy and their opportunities continue to diminish. Given that individuals in this challenging skill segment of the workforce are more likely to have poor experiences in the labor market, and hence incur greater public expenses, it is particularly important to seek and evaluate their labor market options. Utilizing data from the decennial census, the American Community Survey and longitudinal data from the Survey of Income and Program Participation, this paper provides a comprehensive analysis of the economic returns to business ownership among low-skilled workers and addresses the essential question of whether self-employment is a good option for low-skilled individuals that policymakers might consider encouraging. The data reveal substantial differences in the role of self-employment among low-skilled workers across gender and nativity – women and immigrants are shown to be of particular importance both from the perspectives of trends and policy relevance.