Self-employment has fallen sharply to a 20-year low, according to new e61 Institute research that suggests a fundamental shift in how Australians work and run businesses.
The share of Australians who are self-employed fell from a 2002 peak of 20% to just 14% of employment today, as the appeal of wage jobs, including higher pay and benefits like superannuation, continues to grow.
Sole traders dropped from 12% in 2002 to just under 9% today while employing businesses fell from 7% in 2002 to less than 5% today.
The study finds the decline reflects 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.
“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,” said e61 Research Economist Rachel Lee.
“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.”
Using household surveys and administrative business registers, the research shows that 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 study finds the decline in self-employment is particularly pronounced among managers and professionals, which is 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.
“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,” said e61 Research Director Dr Gianni La Cava.
“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.”
The research suggested potential policy solutions that could support business dynamism, including reducing unnecessary regulatory frictions that discourage small firms from hiring. This could include fixed compliance, payroll and workplace obligations, and ensuring tax and transfer settings do not distort occupational choices.
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