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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Keywords entrepreneurship, self-employment, unemployment
JEL J23, Employment Determination; Job Creation; Demand for Labor; Self-Employment (jel), J64, Unemployment: Models, Duration, Incidence, and Job Search (jel), L26, Entrepreneurship (jel), L53, Government Promotion of Firms (jel), M13, New Firms; Startups (jel), O11, Macroeconomic Analyses of Economic Development (jel)
Persistent URL,
Thurik, A.R, Carree, M.A, van Stel, A.J, & Audretsch, D.B. (2008). Does selfemployment reduce unemployment?. Journal of Business Venturing: entrepreneurship, entrepreneurial finance, innovation and regional development, 23(6), 673–686. doi:10.1016/j.jbusvent.2008.01.007