Self-Employment and Labour Market Transitions: A Multiple State Model

43 Pages Posted: 10 Jan 2003

See all articles by Maite Martínez-Granado

Maite Martínez-Granado

University of the Basque Country - Department of Foundations of Economic Analysis I; Centre for Economic Policy Research (CEPR)

Date Written: November 2002

Abstract

We use the British Household Panel Survey (BHPS) to estimate a multiple state transition model with three possible labour market states: self-employment, employment, and unemployment. This enables us to assess the effects of changes in demographic characteristics and economic conditions on the probabilities of exiting and entering these states. We allow for unobservable individual heterogeneity, duration dependence, lagged duration dependence and state dependence. Three main results are obtained. First, the aggregated unemployment rate is found to have a positive effect on the probability of becoming self-employed (push effect). Second, unemployed individuals are found to be more likely to become self-employed but the duration of their unemployment drastically reduces this probability. Third, the government policies undertaken during the 1980s are found to have been successful in promoting the entrance into self-employment, but not in preventing the exit from self-employment.

Keywords: Self-employment, transitions, duration, unemployment

JEL Classification: J23, J64

Suggested Citation

Martínez-Granado, Maite, Self-Employment and Labour Market Transitions: A Multiple State Model (November 2002). Available at SSRN: https://ssrn.com/abstract=368363

Maite Martínez-Granado (Contact Author)

University of the Basque Country - Department of Foundations of Economic Analysis I ( email )

Avda. Lehendakari Aguirre 83
48015 Bilbao
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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