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Does Self-Employment Reduce Unemployment?Roy ThurikErasmus University Rotterdam (EUR) - Centre for Advanced Small Business Economics (CASBEC); Erasmus Research Institute of Management (ERIM); EIM Netherlands - Business and Policy Research; Tinbergen Institute Martin A. CarreeUniversity of Maastricht - Department of Organization & Strategy Andre J. Van StelMax Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics David B. AudretschIndiana University - Institute for Development Strategies; King Saud University; WHU - Otto Beisheim School of Management; Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) November 12, 2007 Jena Economic Research Paper No. 2007-089 Abstract: This paper investigates the dynamic relationship between self-employment and unemployment rates. On the one hand, high unemployment rates may lead to start-up activity of self-employed individuals (the "refugee" effect). On the other hand, higher rates of self-employment may indicate increased entrepreneurial activity reducing unemployment in subsequent periods (the "entrepreneurial" effect). This paper introduces a new two-equation vector autoregression model capable of reconciling these ambiguities and estimates it for data from 23 OECD countries between 1974 and 2002. The empirical results confirm the existence of two distinct relationships between unemployment and self-employment: the "refugee" and "entrepreneurial" effects. We also find that the "entrepreneurial" effects are considerably stronger than the "refugee" effects.
Number of Pages in PDF File: 25 Keywords: entrepreneurship, self-employment, unemployment JEL Classification: J23, J64, L26, L53, M13, O11 working papers seriesDate posted: November 16, 2007Suggested CitationContact Information
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