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Self-Employment, Wealth and Start-up Costs: Evidence from a Financial Crisis

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  • Koffi Elitcha
  • Raquel Fonseca

Abstract

Financial constraints affect individuals’ decision to become self-employed, suggesting a positive relationship between the propensity to become entrepreneur and personal wealth. Recent evidence confirms this hypothesis, and shows that the importance of the entrepreneurship—wealth relationship increases with the extent of liquidity constraints and flattens with the magnitude of start-up costs. Using individual-level data from 3 European and U.S. surveys as well as the World Bank, we investigate the impact of start-up costs on the self-employment—wealth relationship. Results confirm the strong positive relationship between entrepreneurial choice and wealth, as well as the negative effect stemming from an increase in start-up costs. Although there is no strong evidence that wealth in itself played a bigger role during the last global financial crisis, the negative impact of higher start-up costs on wealth proved significant.

Suggested Citation

  • Koffi Elitcha & Raquel Fonseca, 2016. "Self-Employment, Wealth and Start-up Costs: Evidence from a Financial Crisis," Cahiers de recherche 1607, Chaire de recherche Industrielle Alliance sur les enjeux économiques des changements démographiques.
  • Handle: RePEc:lvl:criacr:1607
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    1. Marco Bassetto & Marco Cagetti & Mariacristina De Nardi, 2015. "Credit Crunches and Credit Allocation in a Model of Entrepreneurship," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(1), pages 53-76, January.
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    More about this item

    Keywords

    Self-Employment; Occupational Choice; Wealth; Liquidity Constraints; Start-up Costs; Financial Crisis;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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