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Does Self-Employment Reduce Unemployment?

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Author Info
David B. Audretsch ()
Roy Thurik ()
Andre van Stel ()
M.A. Carree

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Abstract

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 unemploy-ment and self-employment, i.e. "refugee" and "entrepreneurial" effects. We also find that the "entrepreneu-rial" effects are considerably stronger than the "refugee" effects.

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Paper provided by Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy in its series Discussion Papers on Entrepreneurship, Growth and Public Policy with number 2005-07.

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Length: 17 pages
Date of creation: May 2006
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Handle: RePEc:esi:egpdis:2005-07

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Related research
Keywords: entrepreneurship Gibrat's Law self-employment unemployment

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Adriaan J. van Stel & David J. Storey, 2004. "The link between firm births and job creation: Is there a Upas Tree effect?," Discussion Papers on Entrepreneurship, Growth and Public Policy 2004-33, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
    Other versions:
  2. Shane, Scott & Kolvereid, Lars & Westhead, Paul, 1991. "An exploratory examination of the reasons leading to new firm formation across country and gender," Journal of Business Venturing, Elsevier, vol. 6(6), pages 431-446, November. [Downloadable!] (restricted)
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  4. Audretsch, David B, et al, 2002. "Impeded Industrial Restructuring: The Growth Penalty," Kyklos, Blackwell Publishing, vol. 55(1), pages 81-97.
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    Other versions:
  6. Rui Baptista & Roy Thurik, 2004. "The Relationship between Entrepreneurship and Unemployment: is Portugal an Outlier?," Discussion Papers on Entrepreneurship, Growth and Public Policy 2004-40, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
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  10. Isabel Grilo & Roy Thurik, 2005. "Entrepreneurial engagement levels in the European Union," Discussion Papers on Entrepreneurship, Growth and Public Policy 2005-29, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
    Other versions:
  11. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
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  14. David B. Audretsch & Max Keilbach, 2004. "Entrepreneurship Capital and Economic Performance," Discussion Papers on Entrepreneurship, Growth and Public Policy 2004-01, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
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  15. Gioacchino Garofoli, 1994. "New Firm Formation and Regional Development: The Italian Case," Regional Studies, Taylor and Francis Journals, vol. 28(4), pages 381-393, July. [Downloadable!] (restricted)
  16. Michael Fritsch & Pamela Mueller, 2004. "The Effects of New Business Formation on Regional Development over Time," Discussion Papers on Entrepreneurship, Growth and Public Policy 2004-36, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
  17. André Stel & Martin Carree & Roy Thurik, 2005. "The Effect of Entrepreneurial Activity on National Economic Growth," Small Business Economics, Springer, vol. 24(3), pages 311-321, 02. [Downloadable!] (restricted)
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  18. Martin Carree & André van Stel & Roy Thurik & Sander Wennekers, 2007. "The Relation between Economic Development and Business Ownership revisited," Tinbergen Institute Discussion Papers 07-022/3, Tinbergen Institute. [Downloadable!]
  19. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March. [Downloadable!] (restricted)
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  22. David B. Audretsch & A. Roy Thurik, 2000. "Capitalism and democracy in the 21st Century: from the managed to the entrepreneurial economy," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 17-34. [Downloadable!] (restricted)
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  31. Wennekers, Sander & Thurik, Roy, 1999. " Linking Entrepreneurship and Economic Growth," Small Business Economics, Springer, vol. 13(1), pages 27-55, August. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andre van Stel & Lendert Baljeu & Roy Thurik & Ingrid Verheul, 2006. "The Contribution of Business Ownership in Bringing Down Unemployment in Japan," Discussion Papers on Entrepreneurship, Growth and Public Policy 2006-05, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
  2. Pernilla Andersson & Eskil Wadensjö, 2006. "Employees Who Become Self-Employed: Do Labour Income and Wages Have an Impact?," IZA Discussion Papers 1971, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Lorraine Uhlaner & Roy Thurik, 2005. "Post-Materialism Influencing Total Entrepreneurial Activity Across Nations," Discussion Papers on Entrepreneurship, Growth and Public Policy 2005-20, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
    Other versions:
  4. André van Stel & Roy Thurik & Ingrid Verheul & Lendert Baljeu, 2007. "The Relationship between Entrepreneurship and Unemployment in Japan," Tinbergen Institute Discussion Papers 07-080/3, Tinbergen Institute. [Downloadable!]
  5. Isabel Grilo & Roy Thurik, 2005. "Entrepreneurial engagement levels in the European Union," Discussion Papers on Entrepreneurship, Growth and Public Policy 2005-29, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
    Other versions:
  6. Antonio Golpe & Andre van Stel, 2007. "Self-Employment and Unemployment in Spanish Regions in the Period 1979-2001," Jena Economic Research Papers 2007-021, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
  7. Sindy A. González & Héctor J. Villarreal, 2006. "More Pushed than Pulled: Self-employment in rural Mexico ten years after NAFTA," Working Papers 20063, Escuela de Graduados en Administración Pública y Políticas Públicas, Campus Monterrey, revised Nov 2006. [Downloadable!]
  8. Martin Carree & André van Stel & Roy Thurik & Sander Wennekers, 2007. "The Relation between Economic Development and Business Ownership revisited," Tinbergen Institute Discussion Papers 07-022/3, Tinbergen Institute. [Downloadable!]
  9. Daniela Glocker & Viktor Steiner, 2007. "Self-Employment - a Way to End Unemployment? : Empirical Evidence from German Pseudo-Panel Data," Discussion Papers of DIW Berlin 661, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  10. Roy Thurik & Isabel Grilo, 2005. "Latent and actual entrepreneurship in Europe and the US: some recent developments," Discussion Papers on Entrepreneurship, Growth and Public Policy 2005-24, Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy. [Downloadable!]
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