Does Self-Employment Reduce Unemployment?
David B. Audretsch
Indiana University - Institute for Development Strategies; King Saud University; WHU - Otto Beisheim School of Management; Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)
Martin A. Carree
University of Maastricht - Department of Organization & Strategy
Erasmus University Rotterdam (EUR) - Centre for Advanced Small Business Economics (CASBEC); Erasmus Research Institute of Management (ERIM); EIM Netherlands - Business and Policy Research; Tinbergen Institute
Andre J. van Stel
Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
CEPR Discussion Paper No. 5057
This paper investigates the dynamic interrelationship between self-employment and unemployment rates. On the one hand, unemployment rates may stimulate start-up activity of self-employed. On the other hand, higher rates of self-employment may indicate increased entrepreneurial activity reducing unemployment in subsequent periods. These two effects have resulted in considerable ambiguities about the interrelationship between unemployment and entrepreneurial activity. This paper introduces a two equation vector autoregression model capable of reconciling these ambiguities and tests it for data of 23 OECD countries over the period 1974-2002. The empirical results confirm the two distinct relationships between unemployment and self-employment, i.e., 'refugee' and 'entrepreneurial' effects. We also find that the 'entrepreneurial' effects are considerably stronger than the 'refugee' effects.
Number of Pages in PDF File: 17
Keywords: Entreprenuership, Gibrat's Law
JEL Classification: L11, M13
Date posted: August 3, 2005