The Necessity of Self-Employment Towards Retirement: Evidence from Labor Market Dynamics and Search Requirements for Unemployment Benefits

41 Pages Posted: 19 May 2015

See all articles by Jim Been

Jim Been

Leiden University - Department of Economics; Netspar

Marike Knoef

Leiden University, Institute of Tax Law and Economics; Netspar

Date Written: April 30, 2015

Abstract

This paper investigates whether individuals at the end of working life choose self-employment out of necessity and to what degree job search requirements for unemployment benefits induce people to become self-employed. For this purpose we analyze labor market transitions for people between the ages of 50 and 63 using a dynamic multinomial logit model with unobserved heterogeneity.

The results indicate that at the end of the career individuals with a weak labor market position have a relatively high probability to become self-employed, e.g. to end or avoid a period of unemployment or inactivity (necessity driven self-employment). Contrasting some earlier work, the results do not suggest that self-employment is used as a gradual retirement route for employees. A difference-in-differences analysis shows that job search requirements among unemployed older workers increased the outflow from unemployment and decreased the inflow into unemployment, but did not increase self-employment out of necessity or opportunity.

Keywords: Labor market dynamics, retirement, self-employment, unemployment insurance, job search requirements

JEL Classification: C23, J14, J26, J64, J68

Suggested Citation

Been, Jim and Knoef, Marike, The Necessity of Self-Employment Towards Retirement: Evidence from Labor Market Dynamics and Search Requirements for Unemployment Benefits (April 30, 2015). Netspar Discussion Paper No. 04/2015-009, Available at SSRN: https://ssrn.com/abstract=2607928 or http://dx.doi.org/10.2139/ssrn.2607928

Jim Been

Leiden University - Department of Economics ( email )

Steenschuur 25 PO Box 9520
Leiden, 2300 RA
Netherlands

HOME PAGE: http://www.law.leiden.edu/organisation/taxlawandeconomics/economics/staff/been.html

Netspar ( email )

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Marike Knoef (Contact Author)

Leiden University, Institute of Tax Law and Economics ( email )

PO Box 9520
Leiden, 2300 RA
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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