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The long term returns of attempting self-employment with regular employment as a fall back option

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  • Daly, Moira

Abstract

There is a substantial body of research investigating the returns to self-employment. Relatively little attention has been paid to the returns from attempting self-employment while acknowledging that the decision to try self-employment is reversible. But this is the option considered by the worker deciding whether to become self-employed, as are any resulting positive or negative changes to the worker's wages, hours worked, or likelihood of job or business termination and resulting unemployment. The full consequences of attempting self-employment are determined by comparing the actual income streams of individuals who do and who do not attempt self-employment. Selection on observables is controlled by employing nearest-neighbor matching with bias correction. The main result is that there is no significant evidence that individuals who attempt self-employment are punished for doing so: after 15years, those who attempt self-employment receive an (insignificant) 8% and a (significant) 22% premium in labor income and in labor and asset income, respectively. The consequences of attempting self-employment vary by occupation: individuals in technical and professional occupations realize significant gains, of 45% to 62% after 15years, whereas craftsmen see no significant differences in income. Quantile treatment effects on the treated are estimated and reveal that the average positive premiums are driven by the upper tail of the treatment effect distribution.

Suggested Citation

  • Daly, Moira, 2015. "The long term returns of attempting self-employment with regular employment as a fall back option," Labour Economics, Elsevier, vol. 35(C), pages 26-52.
  • Handle: RePEc:eee:labeco:v:35:y:2015:i:c:p:26-52
    DOI: 10.1016/j.labeco.2015.03.013
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    Cited by:

    1. Schulz, Matthias & Urbig, Diemo & Procher, Vivien, 2017. "The role of hybrid entrepreneurship in explaining multiple job holders’ earnings structure," Journal of Business Venturing Insights, Elsevier, vol. 7(C), pages 9-14.
    2. Lougui, Monia & Broström, Anders, 2020. "The Labor Market Value of Experience from Temporary Self-employment," Working Paper Series in Economics and Institutions of Innovation 484, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    3. Felipe Balmaceda, 2018. "Entrepreneurship: skills and financing," Small Business Economics, Springer, vol. 50(4), pages 871-886, April.
    4. Failla, Virgilio & Melillo, Francesca & Reichstein, Toke, 2017. "Entrepreneurship and employment stability — Job matching, labour market value, and personal commitment," Journal of Business Venturing, Elsevier, vol. 32(2), pages 162-177.
    5. Eleanor W. Dillon & Christopher T. Stanton, 2017. "Self-Employment Dynamics and the Returns to Entrepreneurship," NBER Working Papers 23168, National Bureau of Economic Research, Inc.
    6. Eleanor Dillon & Christopher Stanton, 2018. "Self-Employment Dynamics and the Returns to Entrepreneurship," 2018 Meeting Papers 1261, Society for Economic Dynamics.
    7. Canidio, Andrea & Legros, Patrick, 2019. "Task Discretion, Labor Market Frictions and Entrepreneurship," CEPR Discussion Papers 13954, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Self-employment; Entry; Matching;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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