Abstract
The business cycle is likely to be of importance for self-employment rates. When the economy is growing, business opportunities open up and encourage the setup of new firms. In downturns, self-employment may be a way to avoid unemployment. The strength of these pull and push factors may depend on the amount of human capital a person has. The findings in this paper show that although the local business cycle is of minor importance for total self-employment rates in Sweden, there are heterogeneous effects across groups. People with higher human capital endowments are more likely to be pulled into self-employment, while those with lower human capital endowments are to a larger extent pushed into self-employment. This pattern is particularly strong for women. The study contributes to our knowledge of how individuals respond to business cycle changes as well as towards understanding why the association between the business cycle and self-employment rates differ across countries.
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Notes
On influence of capital, see, e.g., Evans and Leighton (1989), Blanchflower and Oswald (1998) and Lindh and Ohlsson (1996). See Dunn and Holtz-Eakin (2000) on intergenerational transfer of human capital, Blanchflower (2000) on flexible working hours and job satisfaction, and Koellinger (2008) on innovative motives.
See, e.g., Hammarstedt (2006) for a study on Swedish data.
See online appendix for results.
I thank an anonymous referee for this suggestion.
There is some disagreement in the literature on how the self-employment rate should be measured, whether it should be calculated as the share of self-employed of the employed, the workforce, or the whole population. As discussed in Blanchflower (2000), differences in which individuals and sectors are included can even account for differences in results across studies. According to the theoretical framework discussed above, the share of self-employed in the workforce should be the correct way to measure the self-employment rate since the individual chooses between self-employment and employment with the risk of being unemployed.
See Statistics Sweden (www.scb.se) for more information on the methods used to identify employment status.
For a discussion of the measure, see Public Employment Services (2012).
When the estimates are in italic, it means that the total effect of the local labor market is statistically significant.
As discussed in Sect. 3, people who move to another labor market region may be different from people who choose to stay in a region. However, including all individuals yield a similar result. Results available upon request.
As discussed in Sect. 3, people who move to another labor market region may be different from people who choose to stay in a region. Including all individuals reduces the effect somewhat, but the results remain essentially the same. Results available upon request.
In the sample of women, the mean unemployment rate is 0.0965 with st.d 0.0337 and in the sample of men 0.09678 and st.d. 0.0339.
The results are presented using odds rations since it is rather complicated to interpret interactions in terms of marginal effects (see, e.g., Ai and Norton 2003).
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Acknowledgments
This study was made possible by financial support from the Institute of Evaluation of Labor Market and Education Policy. I am also grateful for constructive comments from Mats Hammarstedt, Magnus Henrekson, Erik Mellander, Henry Ohlsson, Olof Åslund, the editor, and two anonymous referees and language editing assistance by Mark Blake.
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Svaleryd, H. Self-employment and the local business cycle. Small Bus Econ 44, 55–70 (2015). https://doi.org/10.1007/s11187-014-9592-2
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DOI: https://doi.org/10.1007/s11187-014-9592-2