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

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  • Martinez-Granado, Maite

Abstract

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.

Suggested Citation

  • Martinez-Granado, Maite, 2002. "Self-Employment and Labour Market Transitions: A Multiple State Model," CEPR Discussion Papers 3661, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3661
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    Cited by:

    1. Bracke, Philippe & Hilber, Christian A.L. & Silva, Olmo, 2018. "Mortgage debt and entrepreneurship," Journal of Urban Economics, Elsevier, vol. 103(C), pages 52-66.
    2. Pedro Albarran & Raquel Carrasco & Maite Martinez-Granado, 2009. "Inequality for Wage Earners and Self-Employed: Evidence from Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(4), pages 491-518, August.
    3. Andersson Joona, Pernilla & Wadensjö, Eskil, 2008. "A Gender Perspective on Self-Employment Entry and Performance as Self-Employed," IZA Discussion Papers 3581, Institute for the Study of Labor (IZA).
    4. Philippe Bracke & Christian Hilber & Olmo Silva, 2012. "Homeownerhip and Entrepreneurship," SERC Discussion Papers 0103, Spatial Economics Research Centre, LSE.
    5. Hannu Tervo, 2006. "Regional unemployment, self-employment and family background," Applied Economics, Taylor & Francis Journals, vol. 38(9), pages 1055-1062.
    6. Glocker, Daniela & Steiner, Viktor, 2007. "Self-Employment: A Way to End Unemployment? Empirical Evidence from German Pseudo-Panel Data," IZA Discussion Papers 2561, Institute for the Study of Labor (IZA).
    7. Hatmanu (Gagea) Mariana & Iacobuțã Andreea-Oana, 2014. "Determinants Of Entrepreneurial Activity In Times Of Crisis: An Empirical Study," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 320-330, July.
    8. Philippe Bracke & Christian Hilber & Olmo Silva, 2012. "Homeownerhip and Entrepreneurship," SERC Discussion Papers 0103, Spatial Economics Research Centre, LSE.
    9. Rogelio Mercado Jr., "undated". "Domestic Factors and Episodes of Gross Capital Inflows," Working Papers wp26, South East Asian Central Banks (SEACEN) Research and Training Centre.
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    11. Ignez M. Tristao, 2007. "Occupational Employment Risk and its Consequences for Unemployment Duration and Wages: Working Paper 2007-01," Working Papers 18287, Congressional Budget Office.
    12. Sciulli, Dario, 2006. "Making the italian labor market more flexible: an evaluation of the treu reform," UC3M Working papers. Economics we063408, Universidad Carlos III de Madrid. Departamento de Economía.
    13. Faggio, Giulia & Silva, Olmo, 2014. "Self-employment and entrepreneurship in urban and rural labour markets," Journal of Urban Economics, Elsevier, vol. 84(C), pages 67-85.
    14. Ilias Livanos, 2009. "What determines self-employment? A comparative study," Applied Economics Letters, Taylor & Francis Journals, vol. 16(3), pages 227-232.
    15. Torrini, Roberto, 2005. "Cross-country differences in self-employment rates: the role of institutions," Labour Economics, Elsevier, vol. 12(5), pages 661-683, October.
    16. Mette Ejrnæs & Stefan Hochguertel, 2008. "Entrepreneurial Moral Hazard in Income Insurance: Empirical Evidence from a Large Administrative Sample," CAM Working Papers 2008-02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    17. Faggio, Giulia & Silva, Olmo, 2012. "Does self-employment measure entrepreneurship? evidence from Great Britain," LSE Research Online Documents on Economics 57919, London School of Economics and Political Science, LSE Library.
    18. Claudio Michelacci & Olmo Silva, 2007. "Why So Many Local Entrepreneurs?," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 615-633, November.
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    More about this item

    Keywords

    duration; self-employment; transitions; unemployment;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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