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Self-Employment and Labour Market Transitions: A Multiple State Model

  • Martinez-Granado, Maite

We use the British Household Panel Survey (BHPS) to estimate a multiple state transition model with three possible labour market states: self-employment, employment, and unemployment. This enables us to assess the effects of changes in demographic characteristics and economic conditions on the probabilities of exiting and entering these states. We allow for unobservable individual heterogeneity, duration dependence, lagged duration dependence and state dependence. Three main results are obtained. First, the aggregated unemployment rate is found to have a positive effect on the probability of becoming self-employed (push effect). Second, unemployed individuals are found to be more likely to become self-employed but the duration of their unemployment drastically reduces this probability. Third, the government policies undertaken during the 1980s are found to have been successful in promoting the entrance into self-employment, but not in preventing the exit from self-employment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3661.

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Date of creation: Nov 2002
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Handle: RePEc:cpr:ceprdp:3661
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  1. Holtz-Eakin, D. & Joulfaian, D. & Rosen, H.S., 1992. "Entrepreneurial Decisions and Liquidity Constraints," Papers 129, Princeton, Department of Economics - Financial Research Center.
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  8. Blanchflower, David G. & Oswald, Andrew J., 2007. "What Makes a Young Entrepreneur?," IZA Discussion Papers 3139, Institute for the Study of Labor (IZA).
  9. Van den Berg, Gerard J., 2000. "Duration Models: Specification, Identification, and Multiple Durations," MPRA Paper 9446, University Library of Munich, Germany.
  10. Costas Meghir & Whitehouse, E, 1995. "Labour market transitions and retirement of men in the UK," IFS Working Papers W95/10, Institute for Fiscal Studies.
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  13. Bonnal, Liliane & Fougere, Denis & Serandon, Anne, 1997. "Evaluating the Impact of French Employment Policies on Individual Labour Market Histories," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 683-713, October.
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  16. Mealli, Fabrizia & Pudney, Stephen, 1996. "Occupational Pensions and Job Mobility in Britain: Estimation of a Random-Effects Competing Risks Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(3), pages 293-320, May-June.
  17. David Blanchflower & A Oswald, 1991. "Self-Employment and Mrs Thatchers Enterprise," CEP Discussion Papers dp0030, Centre for Economic Performance, LSE.
  18. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
  19. Megan Beckett & Julie Da Vanzo & Narayan Sastry & Constantijn Panis & Christine Peterson, 2001. "The Quality of Retrospective Data: An Examination of Long-Term Recall in a Developing Country," Journal of Human Resources, University of Wisconsin Press, vol. 36(3), pages 593-625.
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  22. Herb J. Schuetze, . "Taxes, Economic Conditions And Recent Trends in Male Self-Employment: A Canada-U.S. Comparison," Canadian International Labour Network Working Papers 11, McMaster University.
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  24. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  25. 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.
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