Does Self-Employment Reduce Unemployment?
Erasmus 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. Carree
University of Maastricht - Department of Organization & Strategy
Andre J. Van Stel
Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
David B. Audretsch
Indiana 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
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, O11working papers series
Date posted: November 16, 2007
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