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Self-Employment Status: The Role of State Dependence and Initial Circumstances

  • Andrew Henley

    ()

This paper uses British longitudinal data to model self-employment status. In contrast to previous studies, the modelling approach accounts for state-dependence and unexplained heterogeneity effects. The paper concludes that state dependence is an important influence on self-employment choice. Someone self-employed last year is, controlling for observable and unobservable influences, 30 percentage points more likely to be self-employed this year than someone who was in paid employment a year ago. We also find significant individual heterogeneity in the probability of self-employment, with significant explained influences operating through gender, educational attainment, occupation, spouse's self-employment, and parental and educational background. Significant, though quantitatively smaller influences come though initial financial circumstance and current house price movements. Local labour market shocks do not appear significantly to influence self-employment choice. This we conclude that the autoregressive nature of self-employment time-series would appear to be a structural rather than a cyclical phenomenon.

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Article provided by Springer in its journal Small Business Economics.

Volume (Year): 22 (2004)
Issue (Month): 1 (02)
Pages: 67-82

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Handle: RePEc:kap:sbusec:v:22:y:2004:i:1:p:67-82
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100338

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  1. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  2. Black, Jane & de Meza, David & Jeffreys, David, 1996. "House Price, the Supply of Collateral and the Enterprise Economy," Economic Journal, Royal Economic Society, vol. 106(434), pages 60-75, January.
  3. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  4. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  5. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
  6. Le, Anh T, 1999. " Empirical Studies of Self-Employment," Journal of Economic Surveys, Wiley Blackwell, vol. 13(4), pages 381-416, September.
  7. Cowling, Marc & Mitchell, Peter, 1997. "The Evolution of U.K. Self-Employment: A Study of Government Policy and the Role of the Macroeconomy," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(4), pages 427-42, September.
  8. 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.
  9. Taylor, Mark P, 1996. "Earnings, Independence or Unemployment: Why Become Self-Employed?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 253-66, May.
  10. Arulampalam, Wiji, 1999. " Practitioners' Corner: A Note on Estimated Coefficients in Random Effects Probit Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 597-602, November.
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