The 'Recession-Push' Hypothesis Reconsidered
University of Huelva
Antonio A. Golpe
University of Huelva; University of Huelva - Economics and Statistics
Andre J. Van Stel
Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
March 28, 2009
The relationship between unemployment and self-employment has been studied extensively. Due to its complex, multifaceted nature, various scholars have found a large array of different results, so that the exact nature of the relation is still not clear. An important element of the relation is captured by the recession-push hypothesis which states that in times of high unemployment individuals are pushed into self-employment for lack of alternative sources of income such as paid employment. We make two contributions. First, we argue that official unemployment rates may not capture the 'true' rate of unemployment as it does not include 'hidden' unemployed who are out of the labour force. Therefore, we propose a new method where the 'recession-push' effect relates not only to the (official) unemployed but also to the inactive population. Second, we argue that the magnitude of the recession-push effect is non-linear in the business cycle, i.e. the effect is disproportionally stronger when economic circumstances are worse. We provide empirical support for our hypotheses using quarterly data for Spain over the period 1976-2004.
Number of Pages in PDF File: 20
Keywords: self-employment, unemployment, time-series models, threshold cointegration, nonlinearity, refugee effect, recession-push hypothesis, Spain
JEL Classification: C32, J24, M13working papers series
Date posted: March 29, 2009
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