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Labour market institutions,learning and self-employment
Authors:Nikolaj Malchow-Møller  James R Markusen  Jan R Skaksen
Institution:(1) CEBR, Copenhagen Business School, Frederiksberg, Denmark;(2) Department of Business and Economics, University of Southern Denmark, Odense M, Denmark;(3) University of Colorado, Boulder, Colorado;(4) Department of Economics, Copenhagen Business School, Frederiksberg, Denmark
Abstract:We develop a dynamic partial-equilibrium model to analyse how labour market institutions (wage compression, minimum wages, unemployment benefits, mobility costs and fixed-costs of self-employment) and learning affect who and when people become self-employed. We find that certain ability groups of workers become self-employed for both “carrot” and “stick” reasons: Some prefer self-employment to the low institutionalised wage, while others are not productive enough to qualify for a job at the institutionalised wage. Furthermore, wage compression and learning may give rise to a class of switchers who start in wage employment and later switch to self-employment. Several predictions of the model are consistent with observed empirical regularities, such as the existence of a group of low-skilled self-employed workers, the increasing propensity for self-employment over age groups and the larger spread in earnings among self-employed.
Keywords:
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