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Does Self-Employment Reduce Unemployment?

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  • David B. Audretsch
  • Roy Thurik
  • Andre van Stel
  • M.A. Carree

Abstract

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.

Suggested Citation

  • David B. Audretsch & Roy Thurik & Andre van Stel & M.A. Carree, 2006. "Does Self-Employment Reduce Unemployment?," Papers on Entrepreneurship, Growth and Public Policy 2005-07, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  • Handle: RePEc:esi:egpdis:2005-07
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    entrepreneurship; Gibrat's Law; self-employment; unemployment;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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