Fewer Australians are starting a business, and those who do aren't hiring

The Federal Government should use the upcoming Budget to encourage economic dynamism, as new CEDA research shows the proportion of business owners in Australia hit a record low last year despite ongoing interest in entrepreneurship and self-employment.

CEDA’s new report, Hustling, not hiring: Why fewer Australians are starting a business, finds Australia has experienced a long-term decline in business ownership rates and in the creation of “employing businesses” – that is, new businesses that hire workers. 

Up to 13 per cent of working-age Australians and 47 per cent of secondary school students want to work for themselves or start a business, but that ambition is not translating into a pipeline of new businesses that can grow, hire and contribute to a more dynamic economy, CEDA Chief Executive Melinda Cilento said. 

“New businesses are a launching pad for future innovation, competition and jobs. Their dynamism comes from their novelty, adaptability, risk appetite and energy,” Ms Cilento said.

“If we want a more productive, competitive and resilient economy, we need to make it easier for people to turn a good idea into a growing enterprise.”

Our analysis shows the proportion of business owners in the workforce has declined steadily over the past two decades and fell to a record low last year. The decline has been sharpest for owner-managers with employees and less steep for solo owner-operators. It is evident across all age groups, including younger workers. 

By contrast, the total rate of business formation has grown modestly over the past decade. While this seems positive, the result is almost entirely driven by growth in businesses without employees – entry rates for businesses with employees declined steadily through the 2000s and have since been relatively flat.

This growth in businesses without employees has coincided with the rise in second jobs, side hustles and digital-platform work.

“Starting a side hustle or taking on gig work can be a flexible way to get started and gain some hands-on experience,” Ms Cilento said.

“But the evidence suggests most of these activities are intended only to top-up household income and not to build the next generation of employing firms. We should not confuse a rise in ‘hustling’ with a rise in business dynamism.”

We also find the rate of creation of employing businesses has declined across all states and most industries over the last two decades. 

While all states experienced this long-term slowdown, Victoria has had a slower and weaker recovery in employing business creation since the disruptions of the COVID-19 pandemic. It is the only mainland state not to have increased its growth rate above pre-pandemic levels.

Our analysis shows the decline in business creation is broad-based, suggesting structural barriers such as regulation, limited access to finance and market concentration make starting and growing a business difficult.

“New and small firms often have fewer resources to navigate regulation, secure finance or compete against established incumbents,” Ms Cilento said.

To address this, we must refresh the policies, programs and supports that shape Australia’s entrepreneurial ecosystem across all levels of government.

“With the Federal Budget looming next month, the Government should ensure it is getting bang for its buck on these measures and adjust them if they are ineffective,” Ms Cilento said.

This includes reducing duplicated or outdated regulatory barriers, simplifying information and application processes for grants and support programs, improving access to finance and insurance, better promoting business training and advice, and addressing anti-competitive barriers that make it harder for new firms to enter and grow. 

“At this time of technological and geopolitical upheaval we need more types of business to flourish in a broader range of industries, to secure prosperity for Australians now and into the future,” Ms Cilento said.

CEDA Chief Executive Melinda Cilento is available for further comment and interviews.

Media contact: 
Justine Parker, Media Manager and Content Specialist
Mobile: 0436 379 688
Email: justine.parker@ceda.com.au