Self-Employment and Labor Market Risks

Richard Audoly

No 1085, Staff Reports from Federal Reserve Bank of New York

Abstract: I study the labor market risks associated with being self-employed. I document that the self-employed are subject to larger earnings fluctuations than employees and that they frequently transition into unemployment. Given that the self-employed are not eligible to unemployment insurance, I analyze the provision of benefits targeted at these risks using a calibrated search model with (i) precautionary savings, (ii) work opportunities in paid and self-employment, and (iii) skill heterogeneity. This exercise suggests that extending the current U.S. unemployment insurance scheme to the self-employed comes with a clear increase in the transition rate from self-employment to unemployment and an unequal benefits-to-contributions ratio across skill groups. At the calibrated parameters, the self-employed in the middle of the skill distribution lose welfare.

Keywords: self-employment; unemployment insurance; earnings dynamics (search for similar items in EconPapers)
JEL-codes: J40 J64 J65 (search for similar items in EconPapers)
Pages: 58
Date: 2024-01-01
New Economics Papers: this item is included in nep-dge, nep-ent, nep-iue and nep-lab
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Working Paper: Self-employment and labor market risks (2024)
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DOI: 10.59576/sr.1085

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