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Stars and Misfits: Self-Employment and Labor Market Frictions

  • Thomas Åstebro


    (HEC Paris, 78351 Jouy-en-Josas Cedex, France)

  • Jing Chen


    (Department of Innovation and Organizational Economics, Copenhagen Business School, 2000 Frederiksberg, Denmark)

  • Peter Thompson


    (Goizueta Business School, Emory University, Atlanta, Georgia 30322; and Florida International University, Miami, Florida 33199)

Recent evidence has shown that entrants into self-employment are disproportionately drawn from the tails of the earnings and ability distributions. This observation is explained by a multitask model of occupational choice in which frictions in the labor market induce mismatches between firms and workers, and misassignment of workers to tasks. The model also yields distinctive predictions relating prior work histories to earnings and to the probability of entry into self-employment. These predictions are tested with the Korean Labor and Income Panel Study, from which we find considerable support for the model. This paper was accepted by Lee Fleming, entrepreneurship and innovation.

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Article provided by INFORMS in its journal Management Science.

Volume (Year): 57 (2011)
Issue (Month): 11 (November)
Pages: 1999-2017

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Handle: RePEc:inm:ormnsc:v:57:y:2011:i:11:p:1999-2017
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