About this Report
Using data from the Canadian Employer-Employee Dynamic Database and Canadian taxpayer data, researchers identify employees displaced in mass layoff events, termed “necessity entrepreneurs.” They track these individuals as they start various kinds of entrepreneurial activities and compare their performance to a matched group of voluntary entrepreneurs.
After the initial significant negative effects of a mass layoff on worker earnings and withdrawals from RRSPs, a number of laid-off workers become entrepreneurs. The analysis finds that necessity entrepreneurs using an unincorporated legal structure (e.g., very small gig-type enterprises that are unregistered and without a formal business number) perform better than the control group of voluntary entrepreneurs. However, necessity entrepreneurs using an incorporated legal structure perform worse than voluntary entrepreneurs, both in the short and long term. These findings suggest that it is more appropriate for displaced workers to “aim low” and select the less complicated unincorporated legal structure.
The data also reveals certain gender differences and highlights that necessity entrepreneurs who are immigrants are the one group able to successfully engage through incorporated businesses. The report explores reasons for these findings, including lower entry costs for entrepreneurship and the ease of less formal structures.