Older Entrepreneurs: Unsupported Economic Heroes

Abstract:

Entrepreneurs are hailed as economic heroes and drivers of job growth. Yet an analysis of Current Population Survey data of U.S. residents between ages 50–64 demonstrates that entrepreneurs disproportionately lack health insurance and workplace retirement savings program coverage. Finding that nearly 1 in 10 adults in this age range are self-employed, this study documents disparities by self-employment incorporation status, gender, and race and ethnicity. Using a financial capability perspective, program and policy actions to reduce these disparities are highlighted. If enacted, more entrepreneurship could be unlocked.

Key Words:

entrepreneurs, health insurance, workplace retirement savings programs

Entrepreneurs are the stuff of lore: Hailed as economic heroes in the media, throughout the political spectrum, and in society at large, entrepreneurs are responsible for about 20% of job growth in the United States through the new businesses they create (Haltiwanger et al., 2013). The experience that comes with increased age may be a key component of an entrepreneur’s success: the average age of the most successful entrepreneurs in the United States, measured by growth and business acquisition, is about 45 years old (Azoulay et al., 2020).

Why Pursue Entrepreneurship in Later Life—And What Happens?

The motivations to become an entrepreneur can be a mixed bag. Many are “pulled” into later-life entrepreneurship in pursuit of passions and to gain autonomy, flexibility, a sense of personal meaning, continued income, and a bridge to retirement (Halvorsen & Chen, 2019; Halvorsen & Morrow-Howell, 2017; Kautonen et al., 2014). However, people can also be “pushed” into later-life entrepreneurship due to unemployment or underemployment, stressful jobs, or a lack of career opportunities, often exacerbated by real or perceived age discrimination (Halvorsen & Morrow-Howell, 2017; Kautonen et al., 2014).

Researchers have shown that while later-life entrepreneurs earn less income from work compared to their wage-and-salary counterparts, they may experience better health than those in wage-and-salary work (Zhang, 2014). Further, switching to entrepreneurship from wage-and-salary work after age 50 has been shown to improve quality of life and self-realization (Kautonen et al., 2017, 2023). Later-life entrepreneurs also can be good for the economy, in that they retire later, on average, than their wage-and-salary counterparts, contributing to the economy while delaying the claiming of Social Security and other pensions (Kautonen et al., 2023).

However, later-life entrepreneurs in the United States do not reflect older adults overall, as they have higher levels of education and wealth, on average, and are less likely to be female, Black, or Hispanic than their wage-and-salary counterparts (Halvorsen, 2021). Further, entrepreneurs of all ages in the United States are less likely to have health insurance and to be saving for retirement (Jackson et al., 2017), highlighting a gap in the social safety net.

The classic image of an entrepreneur—with origins from the French word entreprendre, which means to undertake, and describing a person who innovates in pursuit of opportunities (Dees, 1998)—differs widely from the lived experiences of many so-called entrepreneurs. Many applied scholars of entrepreneurship, myself included, prefer to use the term self-employment in our studies, as it describes those who work for themselves while removing difficult-to-measure concepts like innovation and opportunities from the definition and eliminating the mystique of the term entrepreneur.

Using this simplified definition, it becomes possible to use large datasets to consider the unique experiences of self-employed individuals throughout the lifespan and by various demographic, social, and cultural attributes. Some datasets, such as the Current Population Survey, enable researchers to differentiate between two categories of self-employment: those who have incorporated their businesses (“incorporated”), and those who have not (“unincorporated”). This distinction is important, as the incorporated self-employed—technically employees of their own businesses—are about 3 times as likely to employ others and, among all self-employed workers with paid employees, hire nearly twice as many workers (Kochhar, 2014). Given that smaller businesses are less likely to offer benefits such as health insurance and retirement plans (U.S. Bureau of Labor Statistics, 2022), this distinction also may highlight disparities in access to workplace benefits by incorporation status.

Older Entrepreneurs Less Likely to Have Health Insurance and Retirement Savings Plans

This study examines the social protections of older entrepreneurs, documenting the labor-force status of older U.S. residents (ages 50–64) who are not yet old enough to claim Medicare health insurance but are younger than traditional retirement age, while identifying disparities in health insurance and pension coverage by employment status, gender, and multiple ethnoracial identities. (Although there is no official retirement age in the United States, I use the term “traditional” retirement age—65—to indicate the age at which one traditionally received full Social Security benefits. This was prior to 1983, when Congress passed changes that have been gradually increasing the full retirement age [to age 67 by 2027].)

I analyzed 10 years of pooled data—from 2013 to 2022—from the Current Population Survey of U.S. residents between ages 50 and 64, using data extracted from IPUMS (Flood et al., 2022). Ten years were chosen to create a sample size large enough to include additional ethnoracial groups often left out of reports, including American Indian and Alaska Natives (AIAN), Asian and Pacific Islanders (API), and those who identify as two or more races. (A note of caution: This time period includes good and bad economic times as well as a global pandemic. However, the benefits of this pooled approach include the inclusion of groups often left out of analyses and the averaging of effects through different economic periods.)

I used data from the Annual Social and Economic Supplement (ASEC), which contained questions related to health insurance coverage (regardless of source) and retirement plan coverage through the workplace. Individual-level weights provided by IPUMS were used to increase the representativeness of the results to the larger U.S. population. The final dataset analyzed for this study included 326,741 observations within 161,348 unique workers.

As shown in Figure 1, below, and among adults between ages 50–64 in the United States between 2013–2022, fewer than 1 in 10 (8.9%) were self-employed, on average. Among those, unincorporated self-employment (5.3% of all adults ages 50–64) was the most common, followed by incorporated self-employment (3.7%). Men were more likely work in both categories of self-employment than women.

White adults had a similar unincorporated self-employment rate (5.6%) to Hispanic (5.5%), multiracial (5.5%), and API (5.4%) adults; these groups had an unincorporated self-employment at least twice that of Black adults. AIAN adults’ unincorporated self-employment rates fell in the middle (3.9%). White and API respondents had similar rates of incorporated self-employment (4.3% and 4.2%, respectively), with rates for all other ethnoracial groups ranging from 2.3% for multiracial adults to 0.9% for AIAN adults.

Notes: Author’s calculations using Current Population Survey data from 2013 to 2022 (Flood et al., 2022). SE = self-employment; AIAN = American Indian and Alaska Native; API = Asian and Pacific Islander. With the exception of the Hispanic category, all racial groups shown are not Hispanic.

Figure 1, above, also highlights differences in labor force status by gender, where men were working for pay in either self-employment or wage-and-salary work at a rate of about 10 points higher than women (72.1% vs. 62.2%). Further, while nearly 7 in 10 API (69.5%) and White (68.8%) adults were working for pay, the rates were at least 10 points lower for Black (58.8%), multiracial (58.7%), and AIAN (50.8%) adults.

Figure 2, below, displays health insurance coverage from any source (e.g., from the workplace, spouse, government, marketplace, etc.) among paid workers between ages 50–64 between 2013 and 2022. Unincorporated self-employed adults were the least likely to have health insurance coverage (72.2%). Coverage rates were similar and more than 10 points higher for those working in incorporated self-employment (82%) and wage-and-salary work (84%).

Notes: Author’s calculations using Current Population Survey data from 2013 to 2022 (Flood et al., 2022). SE = self-employment; AIAN = American Indian and Alaska Native; API = Asian and Pacific Islander. With the exception of the Hispanic category, all racial groups shown are not Hispanic.

In each of the three work categories, women had higher rates of health insurance than men. The biggest difference was between women and men who were in unincorporated self-employment (75.6% and 69.9%, respectively). Considering race and ethnicity and among unincorporated self-employed adults, White workers had the highest rate of health insurance coverage (74.7%), followed by API (74.3%), Black (68.7%), multiracial (66.5%), Hispanic (60%), and AIAN (43.6%) adults. AIAN adults were the least likely to have health insurance in all three of the labor force categories analyzed.

As shown in Figure 3, below, just less than half (48%) of wage-and-salary employees were covered by a retirement plan through their work. Yet the rates were much lower for the self-employed, with just about one in five (22%) incorporated and one in 13 (7.7%) unincorporated self-employed covered by a retirement plan through their work.

Notes: Author’s calculations using Current Population Survey data from 2013 to 2022 (Flood et al., 2022). SE = self-employment; AIAN = American Indian and Alaska Native; API = Asian and Pacific Islander. With the exception of the Hispanic category, all racial groups shown are not Hispanic.

Although similar, men had slightly higher rates of workplace retirement plan coverage than women among the three labor-force categories analyzed. Considering race and ethnicity, not more than 10% of unincorporated self-employed adults in any ethnoracial group were covered by a workplace retirement plan, ranging from 8.8% for White to 1.5% for AIAN adults.

Among incorporated self-employed adults, AIAN adults had the highest rate of workplace retirement plan coverage (33.1%), followed by White (23.1%), API (21.1%), multiracial (19.8%), Black (15.4%), and Hispanic (13.8%) adults. Due to the smaller sample size, the AIAN estimate had a linearized standard error of .091, about twice that of the next closest group (multiracial, .047) and more than 5 times that of the third closest group (Black, .017); as such, these results should be interpreted with caution.

Exposing Disparities Among the Self-Employed

Although the personal and societal benefits of self-employment have been well-documented, including various physical, psychosocial, and financial benefits (Halvorsen & Chen, 2019; Halvorsen & Morrow-Howell, 2017; Kautonen et al., 2014, 2017; Zhang, 2014) as well as job creation and later retirement ages (Haltiwanger et al., 2013; Kautonen et al., 2023), less attention has been paid to the downsides of self-employment.

The results speak for themselves: Among adults past midlife who have not yet reached traditional retirement age and are too young for Medicare, self-employed workers have lower rates of health insurance coverage, particularly among the unincorporated, and much lower rates of workplace retirement plan coverage than those in wage-and-salary jobs. Here are the statistics:

• The unincorporated self-employed had rates of health insurance coverage 10 points lower than their incorporated peers (72.2% vs. 82%) and 12 points lower than those in wage-and-salary work (84%). Because benefits like health insurance and retirement savings programs are traditionally offered through the workplace in the United States, these statistics highlight the unaffordability of purchasing health insurance on the open market for older adults who, by law, can be charged up to three times more than younger adults (U.S. Centers for Medicare & Medicaid Services, n.d.).
• Additionally, few (7.7%) of the unincorporated self-employed were saving for retirement through their work, in comparison to nearly half (48%) of those in wage-and-salary work. And despite the fact that self-employed people may contribute to tax-advantaged retirement plans, such as Simplified Employee Pensions and “solo-401(k)s” (Internal Revenue Service, 2022), these results highlight how self-employed people in this study, despite being close to traditional retirement age, rarely save enough or at all (Kim et al., 2021). This may be because the self-employed do not benefit from many policies and incentives offered by many traditional employers—payroll deduction, matched contributions, automatic or required enrollment—that have been shown to dramatically increase savings rates (Gale et al., 2020).

Combined, this lack of benefits has led to what has been called “entrepreneurship lock”—people choosing not to become self-employed so as not to lose important workplace-provided benefits (Fairlie et al., 2011).

Although older men were more likely to be self-employed than older women, health insurance and retirement plan coverage did not vary much by labor force status and gender. However, the results did identify disparities by ethnoracial group. AIAN, Black, and Hispanic adults had the three lowest rates of self-employment as well as overall labor force participation among the six groups analyzed. Among the unincorporated self-employed, these three groups also had the lowest health insurance and workplace retirement plan coverage. These findings echo broader disparities in health insurance coverage by race and ethnicity, although the Affordable Care Act has decreased—but not eliminated—these differences (Buchmueller & Levy, 2020). Further, scholars have documented how ethnoracial disparities in retirement savings plan coverage can be explained by key factors such as homeownership, objective financial knowledge, and financial planning horizon (i.e., the length of time one plans ahead for saving; Kim et al., 2021). Thus, these findings reflect larger health and economic disparities by race and ethnicity.

Call to Action

A key segment of the American working population—the self-employed, a word often used interchangeably with entrepreneurs—are often glorified as economic heroes. And in many ways, they are—for themselves, their families, and our economy. Yet this study identified two key areas in which we are not supporting these economic heroes: health insurance and retirement plan coverage.

Using a financial capability perspective provides a useful framework for shaping program and policy actions moving forward. Financial capability, which addresses the structural barriers to both the ability and opportunity to act in one’s best financial interests (Halvorsen & Skees, 2019), can have far-reaching consequences. As examples, financial literacy activities as well as behavioral economics techniques, such as prompts to save for retirement when filing tax returns (Grinstein-Weiss et al., 2017), which are targeted to self-employed people throughout the lifespan may reduce disparities in retirement saving.

Yet a major reason for saving for retirement is because workplaces offer tax advantaged plans, often with a match. As such, IRAs sponsored by states or the federal government might increase the number of people saving for retirement who are not only self-employed, but also working in wage-and-salary roles without retirement plans (Belbase & Sanzenbacher, 2017). As of June 2023, auto-IRA programs have been enacted in 15 states, a good start (Georgetown Center for Retirement Initiatives, 2023). Given the variation between these state-led initiatives, researchers should evaluate them to identify factors that increase savings the most among the self-employed while decreasing disparities by race, ethnicity, gender, incorporation status, and more.

Separately, it is concerning that so many people later in life, at a time when chronic disease rates increase, are not covered by health insurance. This despite the laudable gains made in health insurance coverage due to the Affordable Care Act (Buchmueller & Levy, 2020). Because the unincorporated self-employed are specifically at risk, particularly among racial and ethnic minority populations who also have a higher chronic disease burdens (Quiñones et al., 2019), more emphasis needs to be placed on linking individuals to health insurance subsidies, if eligible, while creating policies that aim to create more universal coverage. One option, for example, is to reduce the age of Medicare eligibility for everyone (Song, 2020). Or, via a more politically fraught yet clearly effective means, enact policies that move toward universal healthcare, unlocking entrepreneurial opportunities for people across the lifespan (Fairlie et al., 2011).

Cal J. Halvorsen, PhD, MSW, is an assistant professor at the Boston College School of Social Work, a project lead and investigator at the Harvard T.H. Chan School of Public Health Center for Work, Health, and Well-being, an affiliate of the Center on Aging & Work at Boston College, and a senior research fellow at CoGenerate. He may be contacted at cal.halvorsen@bc.edu.

Photo credit: Shutterstock/Bricolage

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