Liquidity Constraints, Household Wealth, and Self-Employment: The Case of Older Workers

32 Pages Posted: 10 Jan 2010  

Julie M. Zissimopoulos

University of Southern California - Sol Price School of Public Policy; The RAND Corporation

Lynn A. Karoly

RAND Corporation - Santa Monica CA Offices

Qian Gu

RAND Corporation

Date Written: December 31, 2009

Abstract

Evidence of liquidity constraints affecting entrepreneurship includes increasing rates of business formation with increases in household wealth and no relationship between the likelihood of business formation and wealth at high wealth levels. Using longitudinal data from the Health and Retirement Study on workers over age 50 and employing probit regressions with a non-linear specification of household wealth and liquid wealth, the authors find the relationship between wealth and business formation is consistent with this pattern. The paper also finds that wealth matters more for the formation of businesses requiring high starting capital. Employing the availability of a lump-sum distribution option (LSO) of an employer-provided pension plan as a new proxy for liquidity, the results show that workers with an LSO are more likely than workers with a pension and without an LSO to transition into self-employment. This provides further evidence of the existence and importance of liquidity constraints.

Keywords: entrepreneurship, self-employment, liquidity constraints, pensions

JEL Classification: D31, L26

Suggested Citation

Zissimopoulos, Julie M. and Karoly, Lynn A. and Gu, Qian, Liquidity Constraints, Household Wealth, and Self-Employment: The Case of Older Workers (December 31, 2009). RAND Working Paper Series WR- 725. Available at SSRN: https://ssrn.com/abstract=1533502 or http://dx.doi.org/10.2139/ssrn.1533502

Julie M. Zissimopoulos (Contact Author)

University of Southern California - Sol Price School of Public Policy ( email )

Los Angeles, CA 90089-0626
United States

The RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Lynn A. Karoly

RAND Corporation - Santa Monica CA Offices ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Qian Gu

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

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