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Self-employment and business cycle persistence: Does the composition of employment matter for economic recoveries?

Alan Finkelstein Shapiro ()

Journal of Economic Dynamics and Control, 2014, vol. 46, issue C, 200-218

Abstract: Self-employment comprises an important share of employment in many countries, and tends to expand during downturns through higher inflows from unemployment. Furthermore, countries with higher self-employment shares exhibit lower cyclical output persistence. I build a business cycle model with frictional labor markets where individuals can be self-employed or salaried employed. I show that economies with larger self-employment shares exhibit faster economic recoveries. Differences in the ease of entry into self-employment as the economy recovers explain the contrasting cyclical dynamics. The model successfully captures the cyclical patterns of self-employment and the relationship between self-employment and output persistence in the data.

Keywords: Business cycles; Search and matching frictions (search for similar items in EconPapers)
JEL-codes: E02 E24 E32 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jedc.2014.06.014

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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