Self-employment as an alternative to unemployment

Ellen Rissman

No WP-03-34, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Data from the NLSY show that more than a quarter of all younger men experience some period of self- employment. Many of them return to wage work. This paper analyzes a simple model of job search and self- employment where self- employment provides an alternative source of income for unemployed workers. Self- employment is distinct from wage sector employment in two important respects. First, self- employment is a low-income, low- variation alternative to wage work. Second, once a worker enters self-employment, he loses eligibility to receive unemployment insurance benefits?at least until he returns to wage sector employment. The model suggests that flows into self-employment are countercyclical and flows out of self-employment are procyclical. Data from the NLSY for males at least 21 years of age are used to investigate how demographic and economic variables influence the decision to become self- employed. Fixed effects and random effects logit results indicate that young men are more likely to be self-employed when their wage work opportunities are more limited. Specifically, higher local unemployment rates lead workers to self- select into self-employment, as does past unemployment experience. The process is different for Whites and Nonwhites with education being irrelevant for White self- employed workers. In contrast, for Nonwhites higher education reduces the probability of entering self-employment.

Keywords: Self-employed; Unemployment (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-ent and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://www.chicagofed.org/digital_assets/publicati ... s/2003/wp2003-34.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:wp-03-34

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().