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Promoting self-employment: Does it create more employment and business activity?

Author

Listed:
  • Gilbert Cette

    (NEOMA - Neoma Business School)

  • Jimmy Lopez

    (DGEI-DEMS - Banque de France - Direction Générale des Etudes et des relations Internationales, Direction des Etudes Microéconomique et Structurelles, LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE])

Abstract

We assess the economic impact of reforms promoting self-employment in the three countries that have implemented such reforms since the early 2000s: the Netherlands, the United Kingdom and France. To that end, we use an unbalanced cross country-industry dataset of 4,226 observations, including 12 OECD countries and 20 market industries, over the 1995-2016 period. We first observe, using country-level data, that the share of self-employed workers in total employment is quite stable or declines over the period in all countries in our dataset, except in the three countries where large reforms promoting self-employment have been implemented, and only after these reforms. We econometrically confirm this impact on self-employment in our set of 20 industries and we find that, at the end of the period, the reforms may have increased the share of selfemployed workers in total employment by 5.5pp on average in the Netherlands, 2.5pp in the United Kingdom and 2pp in France. Then, we investigate the impact of reforms on total employment and value added using a difference-indifferences approach. In spite of a broad sensitivity analysis, we find no evidence that the reforms may have impacted either total employment or value-added. These results suggest that the reforms promoting self-employment may have raised the number of self-employed workers, but mostly through a substitution effect between the self-employed and employees, and not through a supply effect or a substitution effect with informal activities. This means that the reforms may have failed to achieve their main objectives.

Suggested Citation

  • Gilbert Cette & Jimmy Lopez, 2021. "Promoting self-employment: Does it create more employment and business activity?," Post-Print hal-03588286, HAL.
  • Handle: RePEc:hal:journl:hal-03588286
    DOI: 10.1111/labr.12211
    Note: View the original document on HAL open archive server: https://hal.science/hal-03588286v1
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    References listed on IDEAS

    as
    1. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
    2. Anna Milanez & Barbara Bratta, 2019. "Taxation and the future of work: How tax systems influence choice of employment form," OECD Taxation Working Papers 41, OECD Publishing.
    3. Lawrence F. Katz & Alan B. Krueger, 2016. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015," Working Papers 603, Princeton University, Department of Economics, Industrial Relations Section..
    4. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
    5. Nicole Bosch & Henk-Wim de Boer, 2017. "The Elasticity of Taxable Income for the Self-Employed: Heterogeneity across Reforms and Income Levels," CPB Discussion Paper 354.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Nicole Bosch & Henk-Wim de Boer, 2017. "The Elasticity of Taxable Income for the Self-Employed: Heterogeneity across Reforms and Income Levels," CPB Discussion Paper 354, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Lawrence F. Katz & Alan B. Krueger, 2016. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015," Working Papers 603, Princeton University, Department of Economics, Industrial Relations Section..
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    More about this item

    Keywords

    self-employment; entrepreneurship; structural reforms;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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