Self-Employment Dynamics Across the Business Cycle: Migrants vs Natives

Klaus Zimmermann () and Amelie Constant

No 4754, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Economically active people are either in gainful employment, are unemployed or self-employed. We are interested in the dynamics of the transitions between these states across the business cycle. It is generally perceived that employment or self-employment are absorbing states. However, innovations, structural changes and business cycles generate strong adjustment processes that lead to fluctuations between employment and self-employment, directly or through the unemployment state. Migrants are more likely to be sensitive to adjustment pressures than natives, since they have less stable jobs and choose more often self-employment to avoid periods of unemployment. These issues are investigated using a huge micro data set generated from 19 waves of the German Socioeconomic Panel. The findings suggest that the conditional probabilities of entry into self-employment are more than twice as high from the status of unemployment as from the status of employment. Self-employment is also an important channel back to regular employment. Business cycle effects strongly impact the employment transition matrix, and migrants take a larger part in the adjustment process. They use self-employment as a mechanism to circumvent and escape unemployment and to integrate into the host country's labour market.

Keywords: Self-employment; entrepreneurship; Business cycle; Migration; Markov chain analysis (search for similar items in EconPapers)
JEL-codes: E32 J23 J61 M13 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-ent, nep-lab and nep-mac
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Citations: View citations in EconPapers (26)

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