A lament for the entrepreneur and the small firm

A hollowing out of Canadian small firm employment. The rise of the owner-operator and the large firm

Statistics Canada released its Labour Force Data for January 2026 today.

Not going to dig into many of the details. I’d recommend comments from BMO’s Doug Porter, Slower (Wages), Lower (U-rate), Weaker (Jobs), and Central 1’s Bryan Yu Mixed but steady start for Canada’s labour market.

Doug framed it well: “Is this bad news (drop in employment, with notable weakness in manufacturing) or good news (bigger drop in the unemployment rate, and a rise in hours worked)? Clearly, the answer is "both." Bryan framed it as a “odd start to the year.”

Go read their stuff.

I’m going to look at the data from another perspective. Specifically, what the numbers suggest about entrepreneurship, and employment at small firms.

As we lament the state of productivity (again), I look to examine the state of the fertile ground from which innovation sprouts. To me, it is among entrepreneurs and small businesses. They have their fingers on the pulse of customers and have the agility to respond quickly to demand pressures.

So, how are entrepreneurship and small firms doing? Of course keeping the existential threat posed by the maniac in the White House in mind.

The highlight some less than favourable trends.

Entrepreneurship

The top two charts look into measures of entrepreneurship via the Labour Force Survey. One chart shows unincorporated and incorporated self employed.

Note the trends. Incorporated self employment is overtaking unincorporated self employment. This matters because unincorporated self employment is not designed for firm growth. It is a less complicated, and less formal, structure. So firms that aim to grow would be incorporated. The entrepreneur with visions of going from the garage to global champion would most likely be in incorporated.

That incorporated self-employment is coming to dominate self-employment overall would seem to be a very important, and very positive, development.

The second chart gives the situation more nuance. It shows those that are classified as incorporated self employed with paid help and those with no paid help. The latter are denoted owner-operators. That might be economist/financial strategist working in their basement producing notes. The ones with paid help are the ones that might be running a small firm with visions of growing into a global champion.

Observe that those without paid help now exceed those with paid help. (This suggests to me that there might be many economist/financial strategist working in their basement producing notes.) However, from the discussion above this is a bit worrisome. The rise of the owner-operator might be a precursor to hiring staff, but those folks might have a deep set of skills, management might not be one of them. Hence, they might not become small firms, they might continue to exist at owner-operated entities. Meanwhile, it implies that fewer in the self employed category are hiring workers.

As “entrepreneur” can be taken as the incorporated self employed with paid help, the trends point toward lacklustre growth in entrepreneurship.

Even if the ground is prepared with perfect conditions, if you plant less and less seed, you should not lament low crop yields.

Small firms

You will often hear that small firms are the beating heart of the Canadian economy (true), and key to job growth trends over time as most people work for small firms. Well, get the defibrillator!!

Most of those employed do still work for small firms, but the Canadian labour market is evolving quickly.

In January 2026, less than 59% of those employed were employed in firms with less than 100 employees. Prior to the pandemic, the share was two-thirds. It is not clear why this has happened, but there has been a sharp rise in employment at firms with more than 100 employees (and, yes, this does include in the public sector).

No matter the reason, the charts highlight a lack of dynamism in small business employment.

With the rise of owner-operators and the shift in employment to larger firms, we are seeing a hollowing out of Canada’s labour market.

Together with the lacklustre trend in entrepreneurship, it suggests an even greater challenge in dealing with the needed fundamental shifts in the Canadian economy.

Simply relying on major projects and large employers to guide that fundamental transformation in the Canadian economy will not likely lead to success.

We need vibrant entrepreneurship and a vigorous small business sector to generate ideas, innovate, grow, compete (locally and globally), and creating job opportunities across the country.

I’ve said before, we need to sweat the small stuff if we are going to successfully set our own path rather than ride the coattails of the US economy.

David Watt | Watt Strategic Economic Advisors

LinkedIn: www.linkedin.com/in/david-g-watt