Association for Public Policy Analysis & Management

Self-employment allows older workers to hold flexible working hours until they are fully retired, providing a less abrupt transition into retirement compared to wage-and-salary jobs. In 2012, 23% of workers over the age of 65 were self-employed. If choosing self-employment can delay retirement, policymakers can raise the employment rate of older individuals by encouraging them to become self-employed workers. This study estimates the effect of choosing self-employment on the decisions to retire using the interstate-banking deregulation laws from 1978 to 1993 in the United States (U.S.) as an instrumental variable for self-employment. I find that these laws lowered the probability that older workers chose self-employment by 17 percentage point. The two-stage least squares estimates show that self-employment reduces the probability that a worker over the age of 62 retires at one to two years later by more than 20 percentage points.