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Does Self-Employment Reduce Unemployment?

David Audretsch (), Martin Carree, Roy Thurik () and André van Stel ()

No 5057, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: entreprenuership; self-employment; unemployment (search for similar items in EconPapers)
JEL-codes: J23 J64 L26 L53 M13 O11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent and nep-lab
Date: 2005-05
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