Australia’s self-employment rate has fallen sharply since the early 2000s, pointing to a shift in how business activity is organised. Unincorporated businesses that employ workers experienced the greatest decline, while solo self-employment fell only modestly and the share of company owners grew.  

Using data from the ABS Longitudinal Labour Force Survey and the HILDA Survey, we show that the fall in unincorporated self-employment aligns closely with changing labour market incentives.  

• Technological change has increased the returns to non-routine cognitive skills (such as problem solving and interpersonal ability) in wage jobs, while the costs and complexities of setting up a business have risen, and 
• Wage employment has become more financially secure as employee-linked benefits – including superannuation and paid leave – have risen as a share of labour income. 

Overall, the decline reflects a reallocation across forms of work and business organisation rather than a uniform fall in entrepreneurial activity. Policies that support business creation may be more effective when they focus on easing hiring, scaling, and transitions across business structures.