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Does Self-Employment reduce Unemployment?

  • A. Roy Thurik

    ()

    (Erasmus University Rotterdam; EIM Business and Policy Research, Zoetermeer; and Max Planck Institute of Economics)

  • Martin A. Carree

    (University of Maastricht)

  • Andre van Stel

    (EIM Business and Policy Research; Cranfield School of Management; and Max Planck Institute of Economics)

  • David B. Audretsch

    (Max Planck Institute of Economics; and Indiana University, USA)

This paper investigates the dynamic relationship between self-employment and unemployment rates. On the one hand, high unemployment rates may lead to start-up activity of self-employed individuals (the "refugee" effect). On the other hand, higher rates of self-employment may indicate increased entrepreneurial activity reducing unemployment in subsequent periods (the "entrepreneurial" effect). This paper introduces a new two-equation vector autoregression model capable of reconciling these ambiguities and estimates it for data from 23 OECD countries between 1974 and 2002. The empirical results confirm the existence of two distinct relationships between unemployment and self-employment: the "refugee" and "entrepreneurial" effects. We also find that the "entrepreneurial" effects are considerably stronger than the "refugee" effects.

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Paper provided by Friedrich-Schiller-University Jena in its series Jena Economic Research Papers with number 2007-089.

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Date of creation: 12 Nov 2007
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Handle: RePEc:jrp:jrpwrp:2007-089
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