Selection into Entrepreneurship and Self-Employment

62 Pages Posted: 11 Dec 2018

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Yona Rubinstein

London School of Economics & Political Science (LSE) - Department of Management

Date Written: December 2018

Abstract

We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated human capital, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.

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Suggested Citation

Levine, Ross Eric and Rubinstein, Yona, Selection into Entrepreneurship and Self-Employment (December 2018). NBER Working Paper No. w25350. Available at SSRN: https://ssrn.com/abstract=3298830

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yona Rubinstein

London School of Economics & Political Science (LSE) - Department of Management ( email )

United Kingdom

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