Does Stricter Employment Protection Legislation Promote Self-employment?

Using recently developed indicators of the strictness of employment protection legislation in OECD countries, the paper examines the issue of whether strict employment protection legislation may promote self-employment by encouraging employers to contract-out work to self-employed workers. Contrary to the results of previous studies, the paper finds little evidence for a positive relationship between self-employment and the strictness of EPL. While the raw data suggest that a positive relationship may indeed exist, once suitable control variables are introduced into the analysis, it appears that if anything, the opposite may be true: i.e. stricter employment protection legislation may actually reduce self-employment.     

Racial differences in self-employment exits

Using detailed work history data in the 1979 National Longitudinal Survey of Youth, I investigate the reasons behind the racial gap in self-employment. My analysis of an “age uniform” sample of men, all of whom are observed from age 22 to 40 years, reveals that racial differences in cross-sectional self-employment rates are largely due to the fact that minority workers’ self-employment spells are relatively short-lived. Moreover, I find that minority workers’ relatively high exit rates are driven primarily by transitions to nonemployment. Estimates from a multinomial logit model of self-employment exits suggest that minority workers’ weak attachment to the labor market prior to entering self-employment is an important determinant of their transition from self-employment to nonemployment, while lack of prior industry and self-employment experience contributes to minorities’ transitions to wage employment. When I assign blacks and Hispanics the same (mean) work histories as whites, the predicted black–white gap in the first-year self-employment survival rate decreases by 31% and the Hispanic–white gap decreases by 14%.     

Is self-employment really a bad experience? : The effects of previous self-employment on subsequent wage-employment wages

We use propensity score matching methods to quantify the effects of past self-employment experience on subsequent earnings in dependent employment using data on the population of Danish men observed between 1990 and 1996. Our results generally confirm existing studies in that we find that a spell of self-employment is associated with lower hourly wages compared to workers who were consecutively wage-employed. We also show, however, that this effect disappears—and even becomes positive in some settings—for formerly self-employed who find dependent employment in the same sector as their self-employment sector. Hence, the on average negative effect of self-employment is rather caused by sector switching than by the self-employment experience per se. Moreover, formerly self-employed who either enjoyed a high income or hired at least one worker during their self-employment spell receive wages in subsequent dependent employment that are at least as high as for individuals who have been consecutively wage-employed.     

Entrepreneurial Women and Men: Two Different Species?

The ability of the self-employed to create additional job opportunities is a fundamental concern given the huge increases in public resources targeted at new venture creation in the U.K. and other countries since 1979. This study initially concentrates on identifying differences in the personal and demographic characteristics of women and men in four potential labour market states, namely; unemployment; waged employment; single self-employment, and; job creating self-employment. It then goes on to consider labour market transitions over a four year period between 1991 and 1995. The key findings are firstly that women entrepreneurs are better educated than their male counterparts and secondly that flows into self-employment were considerably higher for men than women. Furthermore, proportionately, three times as many male self-employed in 1991 had gone on to become job creating self-employed by 1995.     

The Entry and Exit Dynamics of Self-Employment in Canada

This paper documents the extent and cyclicality of self-employment entry and exit flows; explores transitions to and from self-employment; and investigates the influence of individual characteristics and labor market experience as well as macroeconomic conditions on the probability of moving into or out of self-employment.The self-employed sector now employs over two and a half million Canadian workers, has expanded on average by over 4% in the 1990s and accounted for over three out of every four new jobs the economy has created. There are substantial flows both into and out of self-employment over the last 15 years. Gross flows into and out of self-employment averaged nearly half a million per year between 1982 and 1994, amounting to 42% of the total self-employed population.Regression results reveal no statistical evidence supporting the dominance of the push hypothesis over the pull hypothesis – the notion that people are increasingly pushed into self-employment by deteriorating economic conditions. This analysis is done both through time-series analysis and the analysis of the determinants of flows into (and out of) self-employment. As in paid employment, younger Canadians are subject to higher turnover in self-employment – they are not only more likely to enter but also substantially more likely to leave self-employment. Prior paid-employment experience and prior self-employment experience are both found to be associated with a higher likelihood of entering self-employment. The longer one is self-employed, the less likely he/she is going to leave the business. Having a spouse in business (being self-employed) substantially increases the likelihood of the other spouse becoming self-employed – a self-employed spouse often attracts the other to either join the family business or start their own. We also find evidence that steady family income through paid-employment from one spouse increases the self-employed's (the other spouse's) affordability to continue with the business venture and hence reduces the likelihood of leaving self-employment.     

Health insurance and the supply of entrepreneurs: new evidence from the affordable care act

Is the difficulty of purchasing health insurance as an individual or small business a major barrier to entrepreneurship in the USA? I answer this question by taking advantage of the natural experiment provided by the Affordable Care Act’s dependent coverage mandate, which allowed many 19–25 year olds to acquire health insurance independently of their employment. Using a difference-in-difference strategy, I find that the dependent coverage mandate did not increase self-employment among young adults overall, but increased self-employment among disabled young adults by 19–23%.     

Gender differences in full-time self-employment

This analysis reveals interesting gender differences in full-time self-employment. Women who choose full-time self-employment have personal characteristics that are less highly valued in the marketplace than women who work full-time in wage-and-salary employment. The reverse is true for men. It is unclear whether the gender gap in self-employment income is the result of different supply decisions made by women, or greater constraints and/or discriminatory elements faced by women. There is some suggestion that women may place a higher value on nonwage aspects of self-employment than men do.     

Identifying uniform employment-termination practices for multinational employers

After a review of the diverse laws governing termination of employment in 11 countries, the authors note patterns across the different legal systems. For example, all but two of the eleven countries required some form of just cause for dismissing an employee. Several mandated various forms and schedules of notice, and a few required some form of remuneration or severance payment—sometimes in lieu of notice. Additionally, some countries gave the workers the chance to appeal their dismissal, often with the assistance of third parties. Although the authors consider it unlikely that the severance-pay idea will become a blanket policy (since some countries don't require severance pay), they adduce a set of standards that could provide a uniform termination process across all 11 nations. The strategy underlying such a uniform policy is to make its provisions fit the laws of the most restrictive nation, by using a just-cause standard in all dismissals. While that adds some personnel cost, on balance, the authors argue that establishing cause for dismissal protects the employer from future claims and could save money in the long run. It also forces managers to make a specific effort to remediate employment issues and to try to help struggling employees.     

Only the lonely? The influence of the spouse on the transition to self-employment

Previous research showed that married individuals are overrepresented among the self-employed. Few studies proposed skill-spillover between the spouses within the marriage as an explanation. This paper deviates from the previous research by exploring different relationship contexts (e.g., cohabitation, being married or divorced, a widow(er) or single) and the role of partner influences under these contexts. It argues that the interaction between gender and relationship status implies variation in not only resources but also constraints, and hence sorts individuals into two different types of self-employment: entrepreneurial self-employment (i.e., incorporated business) and unincorporated self-employment. Using “Panel Study of Income Dynamics (PSID) 1965–2005” data, results of the competing risk models show that marital status contributes to both types of self-employment transitions, especially for men, but also for women. Cohabitation is a less supportive context for entrepreneurship and a partner’s self-employment experience increases only women’s likelihood of entering into entrepreneurship. These results suggest that skill-spillover between partners might be context dependent and only in one direction (from men to women).     

Who skims the cream of the Italian graduate crop? Wage employment versus self-employment

This paper tests whether academic achievement is a significant determinant of employment status in the Italian labor market: are new entrepreneurs selected from the top or bottom end of the graduate ability distribution? Is the cream of the graduate crop pulled into self-employment by the higher expected earnings or are individuals with lower degree score pushed into entrepreneurship by poor alternatives? Our data show a strong negative relation between academic achievement and self-employment status, i.e., we find skimming of the best graduates into wage and salary work.     

Keywords in 2008

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Push and pull factors and Hispanic self-employment in the USA

This study examines the main push and pull factors driving Hispanic self-employment in the USA by modeling the self-employment decision as a function of sectoral earnings differences, country of origin, and other factors. Findings indicate that a main reason Hispanics engage in self-employment is they can earn more working for themselves than in wage/salary work. Immigrants appear to be pushed into self-employment as a result of limited opportunities in the wage work sector. Although low relative earnings in wage/salary work could push workers with limited English proficiency into self-employment, our findings indicate barriers to this. Results suggest that workers pulled into self-employment are those with more work experience and a college degree. Workers who originate from Southern South America and Colombia have relatively high self-employment rates, while Mexico-origin workers have relatively low self-employment rates. We also uncover differences across Hispanic origin groups in terms of the influence of gender, education, and personal wealth on self-employment participation.     

Determinants of self-employment survival in Europe

This paper investigates the determinants of self-employment survival in Europe in two stages. The first one focuses on the effect of variables at the individual level, while the second raises questions regarding specific regional factors through the introduction of macro variables. In conducting this analysis, discrete choice models, including both single and competing risks frameworks, are applied to data drawn from the European Community Household Panel from 1994 to 2001. Different destination states are considered: paid employment, unemployment and inactivity. This allows us to search for the underlying determinants of these different hazards. The results suggest a positive impact on survival of formal education and previous experience within the labour market. In addition, we find that entering self-employment from unemployment has a strong negative effect on survival within self-employment. However, our results also show that the expenditure on start-up subsidies decreases the risk of exiting self-employment specifically for the group of individuals entering self-employment from unemployment. Therefore, the availability of these incentives might be seen by policymakers as not only a route to increase entry into self-employment, but also as an adequate instrument for equalising survival chances across individuals entering self-employment from unemployment and those entering with a different starting status.     

Self-employment entry across industry groups

Highly educated individuals possessing a net worth exceeding $100,000 are the most likely to enter self-employment. Recent studies have linked personal wealth holdings positively to self-employment entry, but educational attainment has been a weak and erratic determinant of self-employment status. Although barriers such as financial capital constraints clearly shape self-employment entry decisions, the nature of these barriers varies substantially across small business industry groups. The strong role often played by education and work experience in identifying self-employment entrants is often obscured by inappropriate aggregation across industries.Entry barriers shape not only the decision to enter self-employment but also the types of industries that potential business owners are likely to enter. The likelihood of self-employment in skilled services increases greatly as level of education rises, whereas the opposite situation prevails in construction. The major barriers to self-employment entry in manufacturing and wholesaling are clearly financial in nature. In contrast, the primary route to self-employment in the growing skilled services industries is the attainment of advanced educational credentials; personal wealth holdings are secondary.Several factors perform consistently in identifying self-employment entry across industries. The likelihood of entry increases with age, peaking as people approach age 40 and then leveling out. African-Americans are less likely to pursue self-employment than nonminorities.Factors associated with self-employment entry among women are quite different than those that predict male entry, but this partially reflects the differing industry concentrations among men and women. Women are more likely to enter self-employment in skilled services fields. Thus, advanced education and work experience—the human capital variables—are the strongest predictors of female entrants.Barriers to self-employment are most binding to those who possess neither the human capital nor the financial capital traits associated with entry. For others, barriers need not deny access to self-employment—rather, they may simply shape the industry choice. This study is based upon the 1984 Survey of Income and Program Participation (SIPP), a longitudinal survey of households carried out by the U.S. Bureau of the Census. Entry into self-employment was observed over a 32-month period for a sample of 24,428 adults.     

Switching to self-employment can be good for your health

Relying on theoretical insights from the Job Demand-Control model, which links occupational characteristics to health, this paper provides the first causal evidence of the physical and mental health consequences of self-employment. I utilize German longitudinal data for the period 2002–2014 and difference-in-differences estimations to study switches from unemployment to self-employment (necessity entrepreneurship) and transitions from regular- to self-employment (opportunity entrepreneurship). I find that necessity entrepreneurs experience improvements in their mental but not physical health, while opportunity entrepreneurship leads to both physical and mental health gains. Importantly, the health improvements cannot be explained by changes in income or working conditions and are not driven by personality and risk preferences or the local unemployment conditions. As such, the findings highlight an additional non-monetary benefit of self-employment and have implications for entrepreneurship theory and practice, current and would-be entrepreneurs, as well as policy-makers.     

A longitudinal analysis of the young self-employed in Australia and the United States

This paper examines the pattern of self-employment in Australia and the United States. We particularly focus on the movement of young people in and out of self-employment using comparable longitudinal data from the two countries. We find that the forces that influence whether a person becomes self-employed are broadly similar: in both countries skilled manual workers, males and older workers were particularly likely to move to self-employment. We also find that previous firm size, previous union status and previous earnings are important determinants of transitions to self-employment. The main difference we observe is that additional years of schooling had a positive impact on the probability of being self-employed in the US but were not a significant influence in Australia. However, the factors influencing the probability of leaving self-employment are different across the two countries.     

Life satisfaction and self-employment: a matching approach

Despite lower incomes, the self-employed consistently report higher satisfaction with their jobs. But are self-employed individuals also happier, more satisfied with their lives as a whole? High job satisfaction might cause them to neglect other important domains of life, such that the fulfilling job crowds out other pleasures, leaving the individual on the whole not happier than others. Moreover, self-employment is often chosen to escape unemployment, not for the associated autonomy that seems to account for the high job satisfaction. We apply matching estimators that allow us to better take into account the above-mentioned considerations and construct an appropriate control group (in terms of balanced covariates). Using the BHPS dataset that comprises a large nationally representative sample of the British populace, we find that individuals who move from regular employment into self-employment experience an increase in life satisfaction (up to 2 years later), while individuals moving from unemployment to self-employment are not more satisfied than their counterparts moving from unemployment to regular employment. We argue that these groups correspond to “opportunity” and “necessity” entrepreneurship, respectively. These findings are robust with regard to different measures of subjective well-being as well as choice of matching variables, and also robustness exercises involving “simulated confounders”.     

The Structure of Labour Markets in the Hotel and Catering Industry: What do Employment Law Cases Indicate?

The allocation of labour in the hotel and catering industry remains an under-researched and little understood process. Direct empirical observation of the labour market involves methodological difficulties requiring a major research project. An attempt is made to explore the labour market by analysing the facts of employment law cases which must be considered as secondary sources of data. The main conclusions are that the labour market approximates to the neo-classical model and that recent legislation has not provided statutory protection for employees at work.     

Public health insurance,individual health,and entry into self-employment

We investigate the impact of a differential treatment of paid employees versus self-employed workers in a public health insurance system on the entry rate into self-employment. Health insurance systems that distinguish between the two sectors of employment create incentives or disincentives to start a business for different individuals. We estimate a discrete time hazard rate model of entry into self-employment based on representative household panel data for Germany, which include individual health information. The results indicate that an increase in the health insurance cost differential between self-employed workers and paid employees by €10 per month decreases the probability of entry into self-employment by 1.7% of the annual entry rate. This shows that entrepreneurship lock, which an emerging literature describes for the system of employer-provided health insurance in the USA, can also occur in a public health insurance system. Therefore, entrepreneurial activity should be taken into account when discussing potential health-care reforms.     

Individual and place-based drivers of self-employment in Chile

This paper analyzes the importance of individual and place characteristics on the selection into self-employment in Chile. Following a structural and multilevel empirical approach, we test whether both sets of variables explain the variation of individual wages, self-employed earnings, and the propensity of being in independent work. The results indicate that while most of the variation in these three outcomes is explained by individuals’ traits, place-related variables account for a non-negligible share of spatial variation. Second, as suggested by occupational choice theories, the propensity of being in self-employment positively correlates with larger expected earning differentials, but only in the case of employers. This, along with other results, suggests that while employers seem to choose their occupational status, own accounts in Chile seem to respond to factors pushing them into self-employment.