Self-Employment and Labor Market Policies
AbstractWe 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.
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Bibliographic InfoPaper 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:
Note: ISSN 1914-2838
Contact details of provider:
Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2
Web page: http://web.uvic.ca/econ
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Self-employment; occupational choice; unemployment; search and matching; wage tax; business tax; minimum wage; unemployment benefits; job-creation;
Find related papers by JEL classification:
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-13 (All new papers)
- NEP-BEC-2007-10-13 (Business Economics)
- NEP-DGE-2007-10-13 (Dynamic General Equilibrium)
- NEP-LAB-2007-10-13 (Labour Economics)
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