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From complements to substitutes: Structural breaks in the elasticity of substitution between paid-employment and self-employment in the US

  • Emilio Congregado

    (Universidad de Huelva, Spain. Erasmus University of Rotterdam, The Netherlands)

  • Vicente Esteve

    (Universidad de Valencia, Universidad de Alcalá and Universidad de La Laguna, Spain)

  • Antonio A. Golpe

    (Universidad de Huelva, Spain)

This paper provides estimates of the elasticity of substitution between operational and managerial jobs in the US economy during the years 1969-2011, derived from an aggregate CES production function. Estimating the long-term relationship between (the log of) the aggregate employment/self-employment ratio and (the log of) the returns from paid-employment relative to self-employment and testing for structural breaks, we report different estimates of the elasticity of substitution in each of the three regimes identified. Our results help to understand and interpret one of the most intriguing aspects in the evolution of self-employment rates in developed countries: the reversal of the trend in self-employment rates. Our estimates show that a higher level of development is associated with a greater number of entrepreneurs and smaller firms. Some rationales for understanding the growth of the elasticity between paidemployment and self-employment are also suggested.

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File URL: ftp://147.156.210.157/RePEc/pdf/eec_1319.pdf
File Function: First version, 2013
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Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1319.

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Length: 19 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:eec:wpaper:1319
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