How earning capacity moderates the age-self-employment relationship

Purpose This study investigates the role of earnings in the relationship between age and self-employment decisions, which has remained unclear. By bringing together two areas of the self-employment literature, this research demonstrates how self-employment entry occurs differently across age, where the effect of prior employment pay is not consistent. Design/methodology/approach Data from the UK Household Longitudinal Study 2009 to 2020 is used to examine how an individual's prior pay from employment impacts their propensity to enter self-employment through logistical regression methods. Findings Our results suggest that older individuals with higher prior employment pay levels have an increased likelihood of becoming self-employed. By contrast, young individuals are more likely to become self-employed from lower-paid employment. Research limitations/implications Our findings unlock key insights for future research, as we discover that an individual's decision to enter self-employment is influenced by their age in conjunction with their prior earnings from employment. Practical implications The results suggest that financial aid directed to younger individuals may increase self-employment rates, whereas other assistance, such as training courses and network development, is likely to be a more effective policy strategy for older individuals. Originality/value This study bridges two distinct strands in the current literature on self-employment by analysing how both an individual's age and earning capacity determine their likelihood of transitioning from paid employment to self-employment. This offers a new perspective, as these aspects have not been considered in tandem before.