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Labor market transitions and self-employment

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  • Ellen Rissman
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    Abstract

    The self-employed are a heterogeneous group. Some are self-employed because they are good at it, while others are self-employed because they cannot find a better paying salaried job. Data from the CPS for prime age males show that workers are almost twice as likely to enter self-employment from unemployment as from paid employment. Furthermore, almost 22% of workers exit self-employment within the year with most returning to paid employment. This paper develops a framework for examining transitions between the labor market states of unemployment, paid employment, and self-employment. The self-employed fall into two groups: those who continue to seek paid employment in the wage and salary sector and those whose value from self-employment exceeds the expected value from continued search. The calibrated model is used to examine the effects of business startup costs on labor market transition rates. Doubling startup costs has very little impact on these rates.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-07-14.

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    Date of creation: 2007
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    Handle: RePEc:fip:fedhwp:wp-07-14

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    Keywords: Labor market ; Self-employed;

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    References

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    1. Vincenzo Quadrini, 2000. "Entrepreneurship, Saving and Social Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January.
    2. Javier Miranda & Alfred Nucci & Steven J. Davis & John Haltiwanger & Ron S. Jarmin & C.J. Krizan & Kristin Sandusky, 2006. "Measuring the Dynamics of Young and Small Businesses: Integrating the Employer and Nonemployer Universes," Working Papers 06-04, Center for Economic Studies, U.S. Census Bureau.
    3. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
    4. Ellen R. Rissman, 2006. "The self-employment duration of younger men over the business cycle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 14-27.
    5. Jeffrey R. Campbell & Mariacristina De Nardi, 2007. "A conversation with 590 nascent entrepreneurs," Working Paper Series WP-07-20, Federal Reserve Bank of Chicago.
    6. John J. Abowd & John Haltiwanger & Julia Lane, 2004. "Integrated Longitudinal Employer-Employee Data for the United States," American Economic Review, American Economic Association, vol. 94(2), pages 224-229, May.
    7. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
    8. Robert Shimer, 2005. "The cyclicality of hires, separations, and job-to-job transitions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 493-508.
    9. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
    10. Ellen Rissman, 2003. "Self-employment as an alternative to unemployment," Working Paper Series WP-03-34, Federal Reserve Bank of Chicago.
    11. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    12. Robson, Martin T, 1991. "Self-Employment and New Firm Formation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 38(4), pages 352-68, November.
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    Cited by:
    1. Román, Concepción & Congregado, Emilio & Millán, José María, 2013. "Start-up incentives: Entrepreneurship policy or active labour market programme?," Journal of Business Venturing, Elsevier, vol. 28(1), pages 151-175.

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