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Selection Into Entrepreneurship And Self-Employment

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  • Rubinstein, Yona
  • Levine, Ross

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 cognitive and non-cognitive human capital skills, 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

  • Rubinstein, Yona & Levine, Ross, 2020. "Selection Into Entrepreneurship And Self-Employment," CEPR Discussion Papers 15143, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15143
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    2. Sergio Ocampo & Juan Herreño, 2023. "The Macroeconomic Consequences of Subsistence Self-Employment," University of Western Ontario, Departmental Research Report Series 20231, University of Western Ontario, Department of Economics.
    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. Kristina McElheran & J. Frank Li & Erik Brynjolfsson & Zachary Kroff & Emin Dinlersoz & Lucia Foster & Nikolas Zolas, 2024. "AI adoption in America: Who, what, and where," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(2), pages 375-415, March.
    5. Jensen, Thais Laerkholm & Leth-Petersen, Søren & Nanda, Ramana, 2022. "Financing constraints, home equity and selection into entrepreneurship," Journal of Financial Economics, Elsevier, vol. 145(2), pages 318-337.
    6. Fairlie, Robert, 2020. "The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions," MPRA Paper 113127, University Library of Munich, Germany.
    7. Ma, Liya & Niu, Dongxiao & Sun, Weizeng, 2021. "Transportation infrastructure and entrepreneurship: Evidence from high-speed railway in China," China Economic Review, Elsevier, vol. 65(C).
    8. Abraham, Katharine G. & Hershbein, Brad & Houseman, Susan N., 2021. "Contract work at older ages," Journal of Pension Economics and Finance, Cambridge University Press, vol. 20(3), pages 426-447, July.
    9. Kunwon Ahn & John V. Winters, 2023. "Does education enhance entrepreneurship?," Small Business Economics, Springer, vol. 61(2), pages 717-743, August.
    10. Unel, Bulent & Upton, Gregory B., 2023. "Oil & gas induced economic fluctuations and self-employment," Labour Economics, Elsevier, vol. 82(C).
    11. Inés Berniell & Lucila Berniell & Dolores de la Mata & María Edo & Yarine Fawaz & Matilde P. Machado & Mariana Marchionni, 2020. "Motherhood and the Allocation of Talent," CEDLAS, Working Papers 0270, CEDLAS, Universidad Nacional de La Plata.
    12. Juan Herreno & Sergio Ocampo, 2020. "Self-Employment and Development," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20209, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    13. 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.
    14. Naijia Guo & Charles Ka Yui Leung, 2021. "Do elite colleges matter? The impact on entrepreneurship decisions and career dynamics," Quantitative Economics, Econometric Society, vol. 12(4), pages 1347-1397, November.
    15. Hsuan-Hua Huang & Hsing-Wen Han & Kuang-Ta Lo & Tzu-Ting Yang, 2023. "Liquidity Constraints, Cash Windfalls, and Entrepreneurship: Evidence from Administrative Data on Lottery Winners," Papers 2303.17029, arXiv.org.
    16. Fairlie, Robert W, 2020. "The Impact of COVID-19 on Small Business Owners: Continued Losses and the Partial Rebound in May 2020," Santa Cruz Department of Economics, Working Paper Series qt21f993s2, Department of Economics, UC Santa Cruz.
    17. Herreño, Juan & Ocampo, Sergio, 2023. "The macroeconomic consequences of subsistence self-employment," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 91-106.
    18. Jack I. Richter & Pankaj C. Patel, 2022. "Impact of the COVID-19 pandemic on the hours lost by self-employed racial minorities: evidence from Brazil," Small Business Economics, Springer, vol. 58(2), pages 769-805, February.
    19. Barrios, John M. & Hochberg, Yael V. & Yi, Hanyi, 2022. "Launching with a parachute: The gig economy and new business formation," Journal of Financial Economics, Elsevier, vol. 144(1), pages 22-43.
    20. Jarkko Harju & Toni Juuti & Tuomas Matikka, 2023. "Stairway to Heaven? Selection into Entrepreneurship, Income Mobility and Firm Performance," Working Papers 17, Finnish Centre of Excellence in Tax Systems Research.
    21. Macnamara, Patrick & Pidkuyko, Myroslav & Rossi, Raffaele, 2024. "Marginal tax rates and income in the long run: Evidence from a structural estimation," Journal of Monetary Economics, Elsevier, vol. 142(C).
    22. Yu, Wei & Stephan, Ute & Bao, Jia, 2023. "Childhood adversities: Mixed blessings for entrepreneurial entry," Journal of Business Venturing, Elsevier, vol. 38(2).
    23. Struckell, Elisabeth M. & Patel, Pankaj C. & Ojha, Divesh & Oghazi, Pejvak, 2022. "Financial literacy and self employment – The moderating effect of gender and race," Journal of Business Research, Elsevier, vol. 139(C), pages 639-653.
    24. Mustafizur Rahman & Debapriya Bhattacharya & Md Al-Hasan, 2019. "Dimensions of Informality in Bangladesh Labour Market and the Consequent Wage Penalty," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 20(2), pages 224-247, September.

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    More about this item

    Keywords

    entrepreneurship; Human capital; Occupational choice; Corporate finance; Business cycles;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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