A sharp drop in the number of self-employed workers over the course of the COVID-19 pandemic could do long-term damage to the Canadian economy if entrepreneurship doesn’t see a resurgence, advocates say.
While the latest jobs figures from Statistics Canada show unemployment rates returned to pre-pandemic levels last month, the proportion of people working for themselves has not recovered over the past two years.
The most recent Labour Force Survey (LFS) showed some 2.6 million people were considered self-employed as of February 2022, down 9.5 per cent from the same month two years earlier — just before the COVID-19 pandemic took hold in Canada.
Ottawa resident Michael Wood is among those entrepreneurs who’s no longer running a business.
For roughly a decade, Wood and his business partner had run Ottawa Special Events, which built its reputation putting on shows including the Juno Awards, the NHL All-Star Game and other marquee events in the nation’s capital.
Wood saw the writing on the wall for the live event industry in early March 2020 as COVID-19 was beginning to grip the world.
“I was panicked, I really thought I was going to go bankrupt,” Wood says, noting that many of his business loans had personal guarantees that could’ve put his Barrhaven home on the line. Almost immediately, he started talking to capital investors about buying out his 50 per cent stake from Ottawa Special Events.
Wood has since exited his company, having sold his stake to a former employee who’s helping keep the business running. He’s now turned his attention to consulting and small business advocacy.
Wood has become a well-known voice in Ottawa, as well as on Parliament Hill and Queen’s Park, speaking to politicians alongside other business owners still grappling with the same panic he felt over the past two years.
Self-employment gaps could be temporary
The Canadian Federation of Independent Businesses’ (CFIB) latest survey from late February shows that one in seven (14 per cent) small business owners are actively considering bankruptcy or winding down their operations permanently.
CFIB projections from the first year of the pandemic pegged the total number of businesses at risk of closure as high as 200,000.
Wood said he’s surprised the number of people leaving self-employment behind isn’t higher. In February, he sat with roughly 50 other business owners at a roundtable with Ontario’s finance critic Catherine Fife and heard from dance studio operators, barber shop owners and others who still feel close to the edge even as public health restrictions lift.
“The amount of pressure that everybody has been under is been incredible,” he says. “Depending on how hard they were affected by it, I think that some people are going to be like, ‘I am going to go and do something else.'”
Wood notes that Ottawa, largely a government town, might be an especially tempting place for entrepreneurs to close up shop and take a job in the public sector.
Corinne Pohlmann, senior vice-president of national affairs and partnerships at CFIB, tells Global News that the pandemic marked a “very difficult two years” for both freelancers and small business owners.
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That nearly one in 10 self-employed people decided the lifestyle was “not for them” over the course of the pandemic does not surprise her, she says, given the economic upheaval and uncertainty of rotating lockdowns and new waves of the virus.
Pohlmann says, however, that she’s optimistic that the decline in self-employment will end up a temporary break rather than a prolonged exit from freelancing or owning a business.
“I do think that for a lot of folks, it’s an option that they want to get back to as soon as they can and feel they have the support and the financial means to do so again,” she says.
Pohlmann notes that it’s natural for previously independent workers to take a break from the grind and take on an interim job to get “back on (their) feet.”
Wood, who teaches entrepreneurship part-time at Algonquin College, says the answer might lie not in yesterday’s business owners taking another kick at the can, but in the next generation who did not go through the turmoil of the pandemic and still see self-employment as a viable option.
Business confidence ticks up
Even as restrictions end, the pandemic’s trajectory remains uncertain, with some indicators showing cases already on the rise in parts of the country this spring.
But CFIB has nonetheless seen a spike in business confidence in recent weeks — an aggregated metric that’s largely been below pre-pandemic levels over the past two years.
The organization’s February Business Outlook Survey showed a jump in optimism among the 4,000 business owners surveyed. Positive sentiment rose fastest on the 12-month horizon, with the short-term outlook of three-to-four months seeing a more modest increase.
A word cloud of terms businesses owners used to describe their outlook in the survey showed the dichotomy of the current environment: the biggest word in the cloud was “uncertain” while the next largest was “hopeful.”
Pohlmann says this cautious optimism has been a long time coming for owners eager to get their businesses back up to speed. The CFIB survey showed that two-thirds of respondents indicated they were closer than ever to “burning out” in the pandemic.
“I don’t have a crystal ball and I’m no better at knowing what the future brings. But what I will say is that the lifting of restrictions in most areas right across the country has been, I think, a real positive sign for many small business owners at least who think, ‘OK, maybe this is it,’” Pohlmann says.
The CFIB survey showed that among the biggest concerns for those running their businesses are access to talent in Canada’s tight labour market and rising costs, two areas that Pohlmann says governments can work to alleviate for small businesses.
She says January’s hike to Canada Pension Plan premiums was a hard hit to businesses’ payrolls, and that delaying the carbon tax increase set for April could help owners reduce their cost inputs.
Pohlmann also floats the idea of tax incentives to get training for employees as a measure that could see businesses bridge the talent gap.
Recent provincial budgets unveiled in the past week have been a bit “anemic” when it comes to small business support, Pohlmann argues, but she looks forward to the federal government’s next budget release as an opportunity to shore up self-employment rates in Canada as an engine for economic growth.
“Self-employment is what spawns new businesses and spawning new businesses is what is the foundation of Canada’s economy,” she says, citing 2016 statistics from the federal government that small- and medium-sized businesses combine for more than 50 per cent of the country’s gross domestic product.
“The economy won’t grow if we don’t have new businesses being created and having people taking that plunge. Canada, in particular, has actually a higher reliance on small businesses of its economy. … So we need that small business community to be vibrant and growing and constantly going forward in order for our economy to continue to grow.”
Wood agrees that additional incentives, such as tax breaks on retraining and support for getting Main Street businesses online, can help encourage self-employment trends to tick up.
But he says what will give most entrepreneurs confidence to start or restart their business will be seeing shoppers return to storefronts in the months to come.
“I think that we just need consumers to come back.”