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Does Self-Employment Reduce Unemployment?

  • David B. Audretsch

    ()

  • Roy Thurik

    ()

  • Andre van Stel

    ()

  • M.A. Carree

This paper investigates the dynamic interrelationship between self-employment and unemployment rates. On the one hand, unemployment rates may stimulate start-up activity of self-employed. On the other hand, higher rates of self-employment may indicate increased entrepreneurial activity reducing unemployment in subsequent periods. These two effects have resulted in considerable ambiguities about the interrelationship between unemployment and entrepreneurial activity. This paper introduces a two-equation vector autoregression model capable of reconciling these ambiguities and tests it for data of 23 OECD countries over the period 1974-2002. The empirical results confirm the two distinct relationships between unemploy-ment and self-employment, i.e. "refugee" and "entrepreneurial" effects. We also find that the "entrepreneu-rial" effects are considerably stronger than the "refugee" effects.

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Paper provided by Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group in its series Papers on Entrepreneurship, Growth and Public Policy with number 2005-07.

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Length: 17 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:esi:egpdis:2005-07
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