We develop a model of self-employment in the search and matching frame-work of Mortensen and Pissarides. We integrate two strands of theoretical literature: models of self-employment and models of unemployment. Our model explains many empirical findings which are not explained by the existing models of self-employment. In our model, higher minimum wage and unemployment benefits have negative effect on self-employment. These results are supported by empirical evidence. In addition, in our model self-employed earn less, on average, than wage employed workers in equilibrium due to frictions in the labor market. Thus our model provides a novel explanation to one of the key puzzles identified in the empirical literature. We also find that a higher business tax and a lower wage tax reduce self-employment.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Department of Economics, University of Victoria in its series Department Discussion Papers with number
0704.
Length: 53 pages Date of creation: 05 Oct 2007 Date of revision: Handle: RePEc:vic:vicddp:0704
Note: ISSN 1914-2838 Contact details of provider: Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2 Phone: (250)721-8540 Fax: (250)721-6214 Web page: http://web.uvic.ca/econ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (David Giles).