Does unemployment lead to self-employment?

The currently burgeoning literature on the nature of and the causes for the recent reverse in the downward trend in self-employment in many developed economies, contains a somewhat inconclusive debate on the relationship between unemployment and self-employment, and whether self-employment fluctuates pro- or countercyclically. This paper reviews this literature, presents some recent evidence for EC countries, and argues that the approach in the previous research of searching for relationships between unemployment and self-employment stocks is fundamentally inappropriate. A new approach, based on an analysis of inflows to and outflows from self-employment, is called for.I would like to thank Steve Johnson, Günther Schmid, David Storey and an anonymous referee for helpful comments and suggestions on an earlier draft of the paper.