Choice or necessity: do immigrants and their children choose self-employment for the same reasons?

Abstract

Using a generational cohort method and the 1981 and 2006 Canadian Census 20 per cent sample files, this study examines whether the effects of three important determinants of self-employment – expected earnings differentials between paid and self-employment, difficulties in the labour market, and ethnic enclave – differ between immigrants and non-immigrants. Unemployment had a stronger push effect on self-employment among immigrant fathers than among Canadian-born fathers. Expected earnings differential had a stronger effect among Canadian-born fathers than among immigrant fathers. Sons of both immigrants and the Canadian-born were more strongly affected by expected earnings differentials than were their fathers, while unemployment was not a significant factor for them. Ethnic enclave was not positively associated with the self-employment rates among both immigrants and their children.

Keywords

children of immigrants earnings ethnic enclave immigrants’ self-employment labour market second generation unemployment

Introduction

Immigrant entrepreneurship has long been an important feature of labour markets in many Western countries. Immigrants are disproportionately represented in self-employment compared with the domestic-born, as evident in the United States (Borjas, 1986; Lofstrom, 2002), Sweden (Hammarstedt, 2001), Denmark (Andersson and Wadensjö, 2004) and Canada (Hou and Wang, 2011; Li, 1997). Self-employment has been shown to be an important factor in reducing unemployment among immigrants and in creating jobs and innovative businesses (Andersson and Hammarstedt, 2010).

While the burgeoning research on this topic underscores the importance of self-employment for immigrants’ economic integration, most studies have focused on first-generation immigrants. Most studies concerning the second generation have focused on their educational attainment and outcomes in paid employment. Consequently, little is known about the determinants and characteristics of self-employment among this group, what motivates the children of immigrants to become entrepreneurs, whether they do so for the same reasons as their parents, and its implications for labour market integration. Although difficulties in the paid labour market tend to be a strong factor motivating first- generation immigrants to enter self-employment, the second generation may do so for other reasons, such as entrepreneurial aspirations, autonomy and control in daily work-life. These generational differences in intentions may represent changes in the criteria of success: for immigrant parents, success is often measured against the benchmark of what they left behind, while for the second generation it is measured against the attainment of their counterparts in the mainstream host society (Fernandez-Kelly and Konczal, 2005). In Canada, the second generation grew up being proficient in one or both official languages, were educated in the Canadian educational system, and were exposed to mainstream norms and values. Moreover, the second generation tends to obtain higher educational levels than children of Canadian-born parents, suggesting that the second generation should at least have the same access to economic opportunities as the children of Canadian-born parents (Aydemir and Sweetman, 2006). It is highly plausible that push factors such as unemployment and language obstacles and pull factors such as ethnic resources may not play a salient role in the self-employment decision among the second generation.

Using a generational cohort approach, this article compares the correlates of self-employment among immigrants and Canadian-born individuals in different generations. The focus is on the extent to which the likelihood of being self-employed is associated with: (i) expected earnings differentials between self-employment and paid employment; (ii) difficulties in the labour market; and (iii) ethnic enclaves. These three sets of variables have their roots in distinct theoretical approaches to immigrant entrepreneurship.

Three questions are addressed in the article: (1) Are ‘push’ and ‘pull’ factors similarly associated with the likelihood of being self-employed among immigrant parents and Canadian-born parents? (2) Are ‘push’ and ‘pull’ factors similarly associated with the likelihood of being self-employed among the children of immigrants and the children of Canadian-born parents? (3) Did immigrants and the Canadian-born experience similar generational changes in the correlates of self-employment?

Determinants of self-employment

In her work on ethnic entrepreneurship, Zhou (2004) refers to Portes and Rumbaut’s (1990) ‘modes of incorporation’ typology as the analytical framework dealing with variations in immigrant entrepreneurship. The main premise is that how immigrants are incorporated into the host society as either professionals, entrepreneurs, or labour migrants, is determined by contexts of exits (the financial resources and human capital skills immigrants bring with them) and entry (pre-existing ethnic communities, how immigrants are received) (Zhou, 2004: 1046). It is further noted that exit and entry contexts can shape the social environment of immigrant groups creating opportunities (pull factors) and constraints (push factors) for the individual, conditioning what is achievable in the host society.

It is widely established that immigrants in Canada have an earnings disadvantage in comparison to their native-born counterparts. This earnings gap narrows over time as immigrants adjust to the labour markets of the host society (Li, 2003). Recent studies however point to the deteriorating labour market outcomes of newly arrived immigrants, particularly those who arrived during adverse economic conditions (Aydemir, 2003). The earnings disadvantage in general is especially notable among visible minority immigrants, even when accounting for human capital variables (Buzdugan and Halli, 2009).

In line with the disadvantage theory, these constraints are likely to ‘push’ individuals into self-employment. Immigrants may be admired for their work ethic and reliability, but they are nonetheless channelled into low-paying jobs (MacKenzie and Forde, 2009). Structural barriers such as unemployment, low returns to wage work, language barriers and discrimination impede immigrants’ outcomes in paid employment, motivating some to seek alternative opportunities through business start-up (Light, 1979; Model and Lapido, 1996). Using cross-national data, Van Tubergen (2005) finds that immigrants’ self-employment rates are higher in countries with high unemployment rates among the domestic-born and that an immigrant group’s self-employment rate within a country is positively correlated with that group’s unemployment rate. Ram et al. (2008) determined that lack of job opportunities due to foreign-obtained education was a motivating factor for business start-ups among Somali entrepreneurs in Leicester, UK.

In examining the association between group differences in self-employment rates and socio-economic status in the US, Fairlie and Meyer (1996) show that self-employment rates are higher among more advantaged ethnic/racial groups, as measured by their earnings characteristics. In Canada, Li (2000) finds that recent self-employed immigrants earn substantially less than their counterparts in paid-employment, after controlling for differences in observable characteristics. According to Li, this implies that recent immigrants probably encounter obstacles to paid employment and turn to self-employment in response. Li, however, does not assess whether the same patterns are evident among non-immigrants.

The role of ‘ethnic resources’ presents opportunities for the immigrant entrepreneur that may not be available in the salaried workforce. According to the protective market hypothesis, ethnic business owners have a competitive advantage serving ethnic markets based on their insider’s knowledge of clients’ culturally based needs and tastes. This creates a demand for ethnic goods among its members as well as ‘exotic’ items among non-ethnics (Aldrich and Waldinger, 1990). Moreover, immigrants may obtain financial capital more easily within their own ethnic community, as evident among Korean rotating credit associations in the US (Light et al., 1990). Furthermore, the hiring of co-ethnics and kin can solidify norms of obligation and trust (Light, 1972), while informal bonds can nurture the spirit of entrepreneurship and the maintenance and expansion of ethnic businesses (Zhou, 1992, 2004). This is evident among Polish entrepreneurs who arrived in Leicester, UK, since 2004. Those who set up businesses were able to obtain financial backing from their ethnic community, as well as rely on Polish suppliers and clientele (Vershinina et al., 2011). The most common measure of ethnic resources is the ethnic enclave, defined as the concentration of co-ethnics in a local area (Sanders and Nee, 1987).

While ethnic enclaves provide the consumer base and other resources for self-employment, they can also hinder the development of ethnic businesses (Aldrich and Waldinger, 1990). Lack of diversity in skills and types of businesses within an ethnic group may increase competition for the same consumer market, making self-employment less attractive (Yuengert, 1995). Some US and European studies show a negative relationship between the share of one’s ethnic group in a geographic area and self-employment rates (Clark and Drinkwater, 2000; Kahanec and Mendola, 2009; Van Tubergen, 2005).

In addition to these two sociological approaches, a prevailing argument in economics is that self-employment is often viewed as a rational choice, with individuals choosing paid employment or self-employment on the basis of which one offers them the greatest utility (e.g. Borjas and Bronars, 1989; Evans and Jovanovic, 1989; Fairlie and Meyer, 1996). An important part of the utility calculation is the earnings gain an individual expects to achieve by switching from one type of employment to the other. As the expected earnings gain associated with self-employment increases, so does the likelihood of business start-up. Studies in North America and Europe find that expected earnings gains are strongly associated with the likelihood of self-employment for the general population, ethnic minorities and immigrants (Clark and Drinkwater, 2000; Fairlie and Meyer, 1996; Hammarstedt, 2006; Johansson, 2000; Taylor, 1996). It has yet to be determined whether the magnitude of the expected earnings gain where self-employment becomes the preferred option is similar for immigrants and the domestic-born. Working within the utility framework, some analysts interpret a positive association between expected earnings gains and self-employment among immigrants as an indication that low wages make self-employment particularly attractive for this group (Clark and Drinkwater, 2000; Hammarstedt, 2006). Such an interpretation is untenable if a similar association is observed among the domestic-born. Overall, the rational choice approach underscores the relative gains that ‘pull’ individuals into self-employment.

Self-employment is also correlated with individual and family characteristics. Age and work experience are positively correlated with the likelihood of being self-employed because some individuals start businesses later in life after accumulating the necessary human and financial capital through paid employment (Zissimopoulos and Karoly, 2007). Work experience acquired in the country of origin and in the host country may have different effects. In Denmark, immigrant self-employment is positively correlated with years of work experience in the host country, but negatively correlated with years of work experience in the country of origin (Kanas et al., 2009). An extensive review of the empirical research points to no significant correlation between education and entry into self-employment (Van Der Sluis et al., 2008). Education may increase the probability of self-employment by enhancing managerial ability (Sanders and Nee, 1996), but decrease the probability by generating a wider range of employment options (Le, 2000). Being married also represents a form of stability and married couples can pool their finances when starting a business (Le, 2000). Language is an important individual characteristic. Proficiency with the host country language(s) is positively correlated with self-employment, because it facilitates interaction with business suppliers and customers who are not co-ethnics, and increases understanding of business regulations, legalities and management practices (Aldrich and Waldinger, 1990; Sanders and Nee, 1996). Equally, the ability to speak a minority language is an advantage, facilitating contact with co-ethnic employees, customers and suppliers (Min and Bozorgmehr, 2000; Waldinger et al., 2006).

How motivations for entering self-employment differ between immigrants and non-immigrants can be assessed by considering the viewpoints of business owners themselves. Based on a national survey of self-employed workers, Hou and Wang (2011) find that immigrants, especially recent arrivals, were more likely to report that they entered self-employment because of lack of suitable paid jobs than the Canadian-born. The majority of immigrants and the Canadian-born reported, however, that they entered self-employment not because of difficulties in the paid labour market but for reasons related to independence, challenge and creativity. These results suggest that the factors affecting the choice of self-employment are common for immigrants and non-immigrants, even though the effects of these common factors may vary by immigrant status.

Self-employment from parents to children: a pathway to economic advancement?

It is well established in the literature that the children of the self-employed have a greater propensity to enter self-employment themselves (Hout and Rosen, 2000). The exposure and familiarity with self-employment in the family can present this line of work as a viable career option for children (Sorensen, 2007) and develop work values that emphasize self-direction, creativity and autonomy (Kohn et al., 1986). If the children of immigrants choose self-employment for the same reasons as their parents, then it is likely that the second generation also encounter the same labour-market disadvantages as their parents. On the other hand, if entrepreneurship represents an attractive career path because of autonomy, higher wages and creativity as compared with regular employment, it can be surmised that intergenerational mobility for the second generation may represent a breakdown of the barriers apparent among first-generation immigrants.

Of the three theoretical approaches discussed above, it is perhaps the disadvantage theory that generates the clearest hypotheses regarding differences in the reasons why immigrants and their children may become self-employed. Children of immigrants have credentials obtained from Canadian institutions, higher levels of education, better official language skills and have more opportunities for paid employment than their parents. The educational mobility of the second generation indicates the majority surpassing their parents’ educational attainments (Abada et al., 2009; Picot and Hou, 2011). Educational mobility is also noted in other countries. A study of second-generation Turkish entrepreneurs in the Netherlands points to shifts away from traditional ethnic niches and entry into emerging sectors, including information technologies, communication and creative industries (Baycan-Levent et al., 2009). Similarly in the US, the children of immigrants are not concentrated in ethnic industries and occupations like their parents, with labour market outcomes similar to those of the third-and-higher generations (Kasinitz et al., 2008). Ethnic enclaves may also play a weaker role in the self-employment decisions of the second generation, particularly if they are able to compete in mainstream markets rather than capitalizing on opportunities based on ethnic resources, or if their ties to their ethnic group are weaker than those of their parents.

Data

Data used in this study are from the 20 per cent sample micro files of the 1981 and 2006 Canadian Censuses of Population. These datasets are the only Canadian sources that allow comparisons of self-employment patterns by generational status over time. The study sample includes self-employed and paid male workers who were working in the week prior to the census date. Institutional residents, unpaid workers in family business or professional practice, and individuals who reported negative self-employment income are excluded. As in most previous studies of self-employment, workers in farming industries are also excluded. We focus on men in this study. The self-employment rate remains much lower among women than men. The determinants of self-employment and their changing importance may be different for women and men (Caputo and Dolinsky, 1998; Kuhn and Schuetze, 2001). Intergenerational transmission of self-employment skills and resources may also differ by gender (Andersson and Hammarstedt, 2010). These interesting and important gender differences deserve a careful examination in a separate study.

Self-employed workers are defined as individuals who identify themselves as mainly self-employed in their own unincorporated or incorporated business, with or without paid employees.¹ This is a common approach used in previous studies based on census data (Fairlie and Meyer, 2003; Portes and Zhou, 1996; Van Tubergen, 2005; Yuengert, 1995). The analysis is restricted to individuals aged 25 to 44 to permit generational comparisons in self-employment patterns between parents and their children at the same age range but 25 years apart. This approach is consistent with the immigration generation cohort method used by Park and Myers (2010) and Smith (2003).

Generation comparisons are undertaken for two parents and children paired groups: immigrant parents in the 1981 Census and the second generation in the 2006 Census, and Canadian-born parents in the 1981 Census and the third-and-higher generations in 2006. The generational linkage is made through matching a synthetic cohort of parents with a synthetic cohort of children. From the 1981 Census, immigrant parents are restricted to adult immigrants who were aged 25 to 44 and had Canadian-born children aged 0 to 18. They would be the parents of the second generation aged 25 to 44 in the 2006 Census. Canadian-born parents are restricted to the Canadian-born who were aged 25 to 44 and had children aged 0 to 18. From the 2006 Census, the second generation includes Canadian-born individuals who were aged 25 to 44 and had two foreign-born parents. The third-and-higher generations include individuals whose both parents are Canadian-born. Canadian-born children with only one foreign-born and one domestic-born parent are excluded from the study.

Methods

In this section, we first introduce our modelling strategy, then discuss the key explanatory variables, focusing on the measures of ethnic enclave, group-specific labour market difficulties, and expected earnings differential between self-employment and paid employment. The choice of self-employment over paid employment is modelled as a function of socio-demographic characteristics at the individual or family level, and push and pull factors in the labour market (Constant and Zimmermann, 2006). Since the outcome is dichotomous (self-employed vs. paid workers), a probit model is constructed respectively for Canadian-born parents, immigrant parents, the third-and-higher generations, and the second generation. These group-specific models allow the included variables to have different effects on self-employment across groups.

P (y = 1 | x) = G [β ’_{1} * ({InY}_{i}^{se} - {InY}_{i}^{pe}) + β ’_{2} * UNEMP + β ’_{3} * SHARE + β ’_{j} X_{i}]

Here y is the self-employment indicator (self-employed in the week prior to the census = 1, paid workers = 0), G is the standard normal cumulative distribution function. X_i are socio-demographic characteristics including educational levels, years of potential experience, marital status, mother tongue, ethnic groups, geographic region, number of children in the family and housing tenure. Educational levels contain six categories: no high school certificate; high school certificate or diploma; non-university certificate or diploma; bachelor’s degree; graduate degree; and degree in medicine and related fields. Years of potential experience are estimated as ‘age minus years of schooling and 6’. This measure essentially captures years after end of schooling. ‘Years of potential experience’ is preferable over age since it measures the years that individuals are exposed to the labour market after finishing school. Over the 25 years of the study period, educational levels increased greatly among the prime working-age adults and thus reduced their potential years of exposure to the labour market. Mother tongue is coded as English/French = 0, other = 1. Ethnic/population groups are based on the combination of visible minority status and ethnic ancestry variables and contain 18 categories.² Marital status is coded as married (including common-law) vs. others. Geographic regions are grouped into 10 categories: Toronto census metropolitan area (CMA); rest of Ontario; Montreal CMA; rest of Quebec; Vancouver CMA; rest of British Columbia and territories; Alberta; Manitoba; Saskatchewan; and the Atlantic region. Housing tenure is coded as owners vs. renters. For immigrant parents, the model also includes two additional immigrant-specific variables: potential years of foreign experience and the ability to speak English and/or French.³

SHARE is an ethnic group’s population share (in proportion) at the regional level: 18 ethnic/population groups and 10 regions, containing 180 unique values in a given year. UNEMP is group-specific regional unemployment rates with groups defined by generation/immigration status, education and region.⁴ lnY_i^se and lnY_i^pe are expected log weekly earnings from self-employment and paid employment. The difference represents the potential earnings differential for individuals if they switch from paid employment to self-employment. The estimation of the potential earnings differential is explained in detail in the supplemental material in the online Appendix.

Generational changes in self-employment rates and socio-demographic characteristics

At the same age range of 25 to 44, the self-employment rate decreased from immigrant fathers to their Canadian-born sons (Table 1). The decline in the rate of self-employment was not unique from immigrant fathers to their second-generation male offspring: it was also observed from Canadian-born parents to their children. The self-employment rate of second-generation men was higher than that of third-and-higher-generation men; a similar difference was found between the fathers of these two groups.

Table 1.

Descriptive statistics among men aged 25 to 44.

	Immigrant parents in 1981	Second generation in 2006	Canadian-born parents in 1981	Third-and-higher generation in 2006
Sample size	48,359	66,863	311,766	408,034
Self-employment rate (%)	14.3	12.3	11.5	9.8
Expected earnings differential (mean)	−0.16 (0.15)	−0.43 (0.14)	−0.17 (.017)	−0.43 (0.17)
Group-specific unemployment rate (%)	4.3	5.1	7.0	6.5
Group population share (%)	19.0	14.2	68.9	47.4
Number of children (mean)	2.1(0.9)	1.2(1.1)	2.0(0.9)	1.1(1.1)
Homeowner (%)	76.0	81.2	78.0	72.5
No diploma/certificate (%)	30.7	6.4	35.2	12.6
No university diploma (%)	38.2	39.9	32.2	43.3
Bachelor degree (%)	9.6	21.4	8.2	14.3
Degree in medicine (%)	1.4	1.1	0.7	0.4
Graduate degree (%)	9.2	8.5	4.7	5.1
Years of potential work experience (mean)	17.5 (6.9)	14.0 (6.4)	16.4 (6.5)	15.4 (6.4)
Married (%)	98.7	59.1	98.1	67.8
English/French mother tongue (%)	40.7	68.7	97.5	99.4

Source: The 1981 and 2006 Canadian Census 20% sample micro data files.

Note: The numbers in brackets are standard deviations.

From fathers to sons, there was a large decrease in the expected earnings gain by switching from paid employment to self-employment, as shown in the changes in expected earnings differentials in Table 1. These results signal a large deterioration in the earnings position of self-employment relative to paid-employment. A likely implication is that the increased difficulties in making gainful earnings in self-employment may heighten the economic utility calculation in young adults’ self-employment decision. Meanwhile, the group-specific unemployment rate only changed slightly from fathers to sons, regardless of fathers’ immigrant status. The group population share at the city or regional level also decreased from fathers to sons as the influx of immigrants from new source countries continues to change the group composition of the Canadian population.

Some socio-demographic characteristics also changed considerably from fathers to sons (Table 1). There were significant increases in educational attainment among both Canadian-born and immigrant families. The well-known decline or postponement in marriage and childbearing is also observed. While the potential work experience decreased by 1 year from Canadian-born fathers to the third-and-higher-generation men, it decreased by nearly 4 years from immigrant fathers to the second-generation men, reflecting the higher educational level, thus longer years of schooling among the second generation.

The changing effects of economic and socio-demographic factors on self-employment

This section examines whether the selected socio-demographic and economic factors are associated with self-employment differently for parents and children. Probit models are run separately for parents and children and the results are presented in Table 2. The results show a clear increase across generations in the effect of expected earnings differential which reflects the extent that individuals choose self-employment for economic gains. The expected earning differentials were positive and significant for both fathers/sons pairs. Note it is not appropriate to directly compare the magnitude of the coefficients of the same variable across these models because their marginal effects are affected by both the means and coefficients of other variables in the models. To gauge the relative effect of expected earnings differentials for different population groups, its marginal effect was estimated by holding variable values at the means for the third-and-higher generations while the coefficients of each model remain unchanged. The results are presented in Table 3. The marginal effect of expected earnings differentials was larger for sons than for fathers for both fathers/sons pairs. Among fathers, the marginal effect was larger among the Canadian born than among immigrants. Among children, the marginal effect was larger among third-and-higher-generation men than among second-generation men.

Table 2.

Probit regressions on the likelihood of self-employment for men aged 25 to 44.

	Immigrant parents	Second generation	Canadian-born parents	Third-and-higher generation
Earnings differential	0.817***	1.127***	2.454***	1.700***
Group unemployment rate	3.739**	−0.047	1.516***	−0.638*
Group population share	−0.050	−0.087	0.403***	0.051**
Number of children present	0.025**	−0.010	−0.049***	−0.030***
Renters (ref)
Homeowners	−0.027	−0.076**	−0.333***	−0.190***
High school graduate (ref)
No diploma/certificate	−0.161***	0.079	−0.361***	−0.073***
No university diploma	0.047	0.115***	0.261***	0.165***
Bachelor degree	−0.001	0.015	−0.125***	−0.111***
Degree in medicine	1.184***	0.795***	1.469***	0.897***
Graduate degree	−0.270***	−0.107**	−0.435***	−0.249***
Years of Canadian experience	0.045***	0.073***	0.071***	0.094***
Canadian experience squared	−0.001***	−0.002***	−0.001***	−0.002***
Not married (ref)
Married	0.250**	0.227***	0.184***	0.395***
Non-English/French (ref)
English/French mother tongue	−0.097***	−0.090***	−0.011	−0.341***
Years of foreign experience	0.006**
English/French (ref)
No English/French	−0.407***
Ethnic group fixed effects	included	included	included	included
Geographic location effects	included	included	included	included
Number of observations	48,359	66,863	311,766	408,034
Pseudo R squared	0.087	0.049	0.053	0.043

Source: The 1981 and 2006 Canadian Census of population.

Note: Significance level: * p < 0.05; ** p < 0.01; *** p < 0.001.

Table 3.

Estimated marginal effects of expected earnings differentials and group-specific local unemployment rates on self-employment rates.

	Immigrant parents and second generation	Canadian-born parents and third-and-higher generation

	Percentage point changes associated with a 10 percentage-point increase in expected earnings differentials
Fathers in 1981	1.6	2.4
Sons in 2006	2.5	3.6

	Percentage point changes associated with a 10 percentage-point increase in unemployment rates
Fathers in 1981	6.6	1.5
Sons in 2006	−0.01	−1.3

Source: Estimated from models in Table 2 and holding variables at the means of third-and-higher generations.

Group-specific unemployment rates, an indicator of difficulties experienced by a particular group in the local labour market, had a positive effect for fathers, but not significant for second-generation men, while negative for the third-and-higher-generation men (Table 2). The estimated marginal effect of unemployment rates was much larger for immigrant fathers than for Canadian-born fathers (Table 3). Group population share which is intended to measure ethnic enclave is not significant for immigrant fathers and their sons (Table 2). In contrast, it is positive and significant for Canadian-born fathers and the third-and-higher-generation men. With regard to other socio-demographic variables, Canadian experience and being married were positively associated with self-employment rate for both fathers and sons in both pairs (Table 2). Number of children in the family and homeownership were not consistently associated with self-employment. Education was not monotonically associated with self-employment for all groups. Having a degree in medicine (also including dentistry, veterinary medicine or optometry) was strongly associated with a higher likelihood of self-employment. However, other advanced degrees (Bachelor or graduate level) were either negatively or not significantly associated with self-employment relative to high school graduation. At the lower end, individuals without any diploma/certificate were generally less likely to be self-employed than those with a high school graduation certificate.

English/French mother tongue was negatively associated with the probability of self-employment with the exception of Canadian-born parents in 1981 (Table 2). Note ethnic group fixed effects (British/French is one of the groups) was controlled for in the model, so this negative relationship should not be interpreted to reflect a lower self-employment rate among groups with British/French ethnic ancestry. It is possible that the ability to speak a non-English/French mother tongue in adult life is an indication of attachment to one’s ethnic group and having the potential to use ethnic resources or reach ethnic clientele.⁵ For immigrant fathers, the two immigrant-specific variables – ‘not speak English/French’ and years of foreign experience – were both significantly associated with self-employment (Table 2, the model for immigrant fathers). The self-employment rate rose with years of foreign experience. Foreign experience, however, had a much weaker association with self-employment than Canadian experience. Not being able to speak one of Canada’s official languages was associated with a lower self-employment rate. This corroborates other studies that find less proficiency in the host country language is associated with lower likelihoods of being self-employed (Fairlie and Meyer, 1996; Lofstrom, 2002). This suggests that the set-up and operation of self-owned businesses require the ability to speak the official language(s).

Discussion and conclusion

This study examines intergenerational changes in the determinants of self-employment among immigrant parents and their children at the same age range but 25 years apart. The changes from Canadian-born parents to their children are also examined to provide a benchmark of the broad changes in factors affecting self-employment over the past 25 years. The results show that the association of expected earnings differential with individuals’ probability of self-employment increased from fathers to their sons. This variable was more strongly associated with the likelihood of self-employment among sons in 2006 than among fathers in 1981. In 1981 a fair share of individuals would expect earnings gain if switching from paid-employment to self-employment, but this was no longer the case in 2006.⁶ It is possible that the increased difficulties in making high earnings in self-employment heightened the importance of economic calculations in young men’s self-employment decision in 2006. Cross-sectionally, this association was weaker among immigrant fathers than among Canadian-born fathers, and weaker among second-generation men than among third-and-higher-generation men.

Difficulties in the paid labour market had a strong effect only among immigrant fathers. Opposite to the increased effect of expected earnings differentials, the push effect of labour market difficulties decreased over time for young men. Group-specific local employment rate was associated with higher self-employment among fathers but not for their children. The lack of a push effect of difficulties in the labour market in 2006 was unlikely to be due to changes in the extent of difficulties in the labour market experienced by fathers and sons. As shown in Table 1, the group-specific unemployment rate decreased only slightly from Canadian-born fathers to third-and-higher-generation men, but increased slightly from immigrant fathers to their sons. The lack of association was also not due to lack of variation in group-specific unemployment rates in 2006 since the within-group variation (i.e. by education and region) did not change much over time. One possible account is that the opportunities and attractiveness of self-employment declined more for young men in self-employment than in paid employment, as evident from the substantial deterioration in self-employment earnings relative to paid-employment earnings. Thus, although the push was still present, the response was subdued as the pull was absent for most people.

Previous studies have interpreted the association between expected earnings differential and self-employment among immigrants as an indication that discriminatory wages in the paid-employment sector push immigrants towards self-employment (Clark and Drinkwater, 2000; Hammarstedt, 2006). The current study shows, however, that such association exists for both immigrant and non-immigrant men. Furthermore, it was weaker among immigrants than among their children and the domestic-born. Thus, the expected earnings differential does not capture the difficulties in the paid labour market; rather it likely reflects the extent to which self-employment is an economically rational choice.

Group-specific population share, a commonly-used measure of ethnic enclave, was either negatively or not significantly associated with self-employment among immigrant fathers and their sons. Although some of the literature in the United States has featured ethnic enclaves as providing a solid basis for thriving businesses (Portes and Shafer, 2007), our results point to the possibility that increased ethnic concentration incurs greater competition for the same consumer market, making it less attractive to become self-employed (Aldrich and Waldinger, 1990). This finding is consistent with other studies that find no support for the hypothesis that ethnic enclaves promote self-employment shares (Clark and Drinkwater, 2000; Yuengert, 1995).

This study provides the first step in understanding how self-employment motivations differ between immigrant parents and their children. Entrepreneurship has different connotations for immigrants and their children, with parents being more subject to push factors and their children being motivated by pull factors. The second generation can choose to become entrepreneurs suggesting that they are moving away from their parents’ job concentrations and are becoming incorporated into the mainstream economy (Kasinitz et al., 2008). Labour market difficulties as a motivating factor are more apparent among immigrants than their children. These results are in line with the observation that the second generation has surpassed their parents’ levels of education and are in viable positions to compete for the same economic opportunities as the children of Canadian-born parents.

Any support policies for ethnic entrepreneurs aimed at improving the labour market position of migrants should be cognizant of the generational differences, especially since the children of immigrants are similar to their third-and-higher-generation counterparts in choosing self-employment over wage work. These differing motivational forces should be reflected in training programmes and business consultancies for would-be entrepreneurs, which in turn may alleviate the high failure rates of ethnic start-ups (Masurel and Nijkamp, 2004). Future studies can examine the sectoral choice of the second-generation entrepreneurs to determine if there has been a movement away from the traditional ethnic niches that dominated their parents’ entrepreneurial activities or whether group differences in self-employment rates would also be observed among the second generation.

Another area that calls for further investigation relates to immigrant women entrepreneurs and their reasons for choosing self-employment over paid work. Past studies have shown that mothers turn to self-employment to balance earning and childcare while fathers still place emphasis on paid work irrespective of the type of employment (Craig et al., 2012). A comparison of immigrant women and their native-born counterparts as well as among immigrant women and men would be warranted to determine how these push and pull factors intersect with gender and ethnicity to tease out the different motivations for entrepreneurship.

One limitation of this study is that census data don’t contain information on other important determinants of self-employment. For instance, many people enter self-employment not simply for the expected earnings gain, but for reasons related to entrepreneurial values, including independence, being one’s own boss, responsibility, decision making and creativity (Hou and Wang, 2011). Census data also don’t have information on transitions into and out of self-employment and factors affecting these transitions. Such information would provide a fuller picture regarding whether immigrants and their children choose self-employment for similar reasons. Another limitation is that our results on intergenerational changes in self-employment from immigrants to their children may not apply to immigrants who arrived after the 1980s and who experienced growing difficulties in adjusting to the Canadian labour market (Picot and Hou, 2011). Periods of recession will likely affect different immigrant groups, with some experiencing more setbacks. In particular, darker-skinned racial minorities were hit harder in the UK and the United States by the 2008 recession (Tilly, 2011). How these changes would affect the self-employment propensities of their Canadian-born children remain to be explored once these children reach adulthood in the coming decades.

Footnotes

Acknowledgements

We would like to thank the Editor and reviewers for their helpful comments.

Funding

This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.

Notes

Teresa Abada is Associate Professor in the Department of Sociology, University of Western Ontario. Her current research interests include investigating the social, cultural and human capital factors that shape the children of immigrants’ economic and social integration.

Feng Hou is a principal researcher with the Social Analysis Division, Statistics Canada. His research focuses on socio-economic integration of immigrants and the second generation, dynamics of social diversity, neighbourhoood and community contextual effects, and applied statistical techniques.

Yuqian Lu is a labour economist with the Social Analysis Division, Statistics Canada. Her research interests focus on labour market adjustment, labour mobility across geographic regions, and family labour supply.

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