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Selection into Entrepreneurship and Self-Employment

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  • Ross Levine
  • Yona Rubinstein

Abstract

We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated human capital, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.

Suggested Citation

  • Ross Levine & Yona Rubinstein, 2018. "Selection into Entrepreneurship and Self-Employment," NBER Working Papers 25350, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25350
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    Cited by:

    1. Boyan Jovanovic, 2019. "The entrepreneurship premium," Small Business Economics, Springer, vol. 53(3), pages 555-568, October.
    2. Fairlie, Robert W., 2020. "The Impact of COVID-19 on Small Business Owners: Evidence of Early-Stage Losses from the April 2020 Current Population Survey," IZA Discussion Papers 13311, Institute of Labor Economics (IZA).
    3. Robert W. Fairlie, 2020. "The Impact of Covid-19 on Small Business Owners: Evidence of Early-Stage Losses from the April 2020 Current Population Survey," NBER Working Papers 27309, National Bureau of Economic Research, Inc.
    4. Robert W. Fairlie, 2020. "The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions," CESifo Working Paper Series 8581, CESifo.
    5. Robert W. Fairlie, 2020. "The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions," NBER Working Papers 27462, National Bureau of Economic Research, Inc.
    6. Qing Hu & Ross Levine & Chen Lin & Mingzhu Tai, 2019. "Mentally Spent: Credit Conditions and Mental Health," NBER Working Papers 25584, National Bureau of Economic Research, Inc.
    7. Naijia Guo & Charles Ka Yui Leung, 2020. "Do Elite Colleges Matter? The Impact of Elite College Attendance on Entrepreneurship Decisions and Career Dynamics," GRU Working Paper Series GRU_2020_005, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    8. Fairlie, Robert W., 2020. "The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions," IZA Discussion Papers 13707, Institute of Labor Economics (IZA).
    9. Katharine G. Abraham & Brad Hershbein & Susan N. Houseman, 2019. "Contract Work at Older Ages," NBER Chapters, in: Incentives and Limitations of Employment Policies on Retirement Transitions: Comparisons of Public and Private Sectors, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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