The ‘recession-push’ hypothesis reconsidered

  • Emilio Congregado
  • Antonio Golpe
  • André van Stel


The relationship between unemployment and self-employment has been studied extensively. Due to its complex, multifaceted nature, various scholars have found a large array of different results, so that the exact nature of the relation is still not clear. An important element of the relation is captured by the recession-push hypothesis which states that in times of high unemployment individuals are pushed into self-employment for lack of alternative sources of income such as paid employment. We make two contributions to this literature. First, we argue that official unemployment rates may not capture the ‘true’ rate of unemployment as it does not include ‘hidden’ unemployed who are out of the labour force. Therefore, we propose a new method where the ‘recession-push’ effect relates not only to the (official) unemployed but also to the inactive population. Second, we argue that the magnitude of the recession-push effect is non-linear in the business cycle, i.e. the effect is disproportionally stronger when economic circumstances are worse. We provide empirical support for our hypotheses by estimating an econometric model on Spanish data.


Cointegration Non-linear Entrepreneurship Self-employment Unemployment 

JEL Classification

C32 J24 M13 


  1. Acs, Z. J., Audretsch, D. B., & Evans, D. S. (1994). The determinants of variation in the self-employment rates across countries and over time. CEPR Discussion Paper 871.Google Scholar
  2. Ahn, N., & de la Rica, S. (1997). The underground economy in Spain: an alternative to unemployment? Applied Economics, 29, 733–743.CrossRefGoogle Scholar
  3. Alañón, A., & Gómez-Antonio, M. (2005). Estimating the size of the shadow economy in Spain: a structural model with latent variables. Applied Economics, 37, 1011–1025.CrossRefGoogle Scholar
  4. Audretsch, D. B., & Acs, Z. J. (1994). New firm start-ups, technology and macroeconomic fluctuations. Small Business Economics, 6, 439–449.CrossRefGoogle Scholar
  5. Audretsch, D. B., Carree, M. A., van Stel, A. J., & Thurik, A. R. (2002). Impeded industrial restructuring: the growth penalty. Kyklos, 55(1), 81–98.CrossRefGoogle Scholar
  6. Binks, M., & Jennings, A. (1986). Small firms as a source of economic rejuvenation. In J. Curran, J. Stanworth, & D. Watkins (Eds.), The survival of the small firm (Vol. 1, pp. 19–37). Aldershot: Gower.Google Scholar
  7. Black, J., de Meza, D., & Jeffreys, D. (1996). House prices, the supply of collateral and the enterprise economy. Economic Journal, 106, 60–75.CrossRefGoogle Scholar
  8. Blanchflower, D. G. (2000). Self-employment in OECD countries. Labour Economics, 7, 471–505.CrossRefGoogle Scholar
  9. Blanchflower, D. G., & Oswald, A. J. (1998). What makes an entrepreneur? Journal of Labour Economics, 16, 26–60.CrossRefGoogle Scholar
  10. Bögenhold, D., & Staber, U. (1991). The decline and rise of self-employment. Work Employment and Society, 5, 223–239.CrossRefGoogle Scholar
  11. Bruce, D. (2000). Effects of the United States tax system on transitions into self-employment. Labour Economics, 7, 545–574.CrossRefGoogle Scholar
  12. Carrasco, R. (1999). Transitions to and from self-employment in Spain: an empirical analysis. Oxford Bulletin of Economics and Statistics, 61(3), 315–341.CrossRefGoogle Scholar
  13. Clark, K., & Drinkwater, S. (1998). Ethnicity and self-employment in Britain. Oxford Bulletin of Economics and Statistics, 60, 383–407.CrossRefGoogle Scholar
  14. Clark, K., & Drinkwater, S. (2000). Pushed out or pulled in? Self-employment among minorities in England and Wales. Labour Economics, 7, 603–628.CrossRefGoogle Scholar
  15. Congregado, E. (Ed.). (2008). Measuring entrepreneurship; building a statistical system. NewYork: Springer.Google Scholar
  16. Cowling, M., & Mitchell, P. (1997). The evolution of UK self-employment: a study of government policy and the role of the macroeconomy. The Manchester School of Economic and Social Studies, 65, 427–442.CrossRefGoogle Scholar
  17. Cullen, J. B., & Gordon, R. H. (2002). Taxes and entrepreneurial activity: theory and evidence for the US. NBER Working Paper 9015. Cambridge, MA: NBER.Google Scholar
  18. Dell’Anno, R., Gómez-Antonio, M., & Pardo, A. (2007). The shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach. Empirical Economics, 33, 51–84.CrossRefGoogle Scholar
  19. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–431.Google Scholar
  20. Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49, 1057–1072.CrossRefGoogle Scholar
  21. Foti, A., & Vivarelli, M. (1994). An econometric test of the self-employment model: the case of Italy. Small Business Economics, 6, 81–93.CrossRefGoogle Scholar
  22. Georgellis, Y., & Wall, H. J. (2005). Gender differences in self-employment. International Review of Applied Economics, 19(3), 321–342.CrossRefGoogle Scholar
  23. Golpe, A., & van Stel, A. (2008). Self-employment and unemployment in Spanish regions in the period 1979–2001. In E. Congregado (Ed.), Measuring entrepreneurship; building a statistical system (pp. 191–204). NewYork: Springer.CrossRefGoogle Scholar
  24. Hamilton, R. T. (1989). Unemployment and business formation rates: reconciling time series and cross-section evidence. Environment and Planning, 21, 249–255.CrossRefGoogle Scholar
  25. Hansen, B. E., & Seo, B. (2002). Testing for two-regime threshold cointegration in vector error-correction models. Journal of Econometrics, 110, 293–318.CrossRefGoogle Scholar
  26. Harrison, R. T., & Hart, M. (1983). Factors influencing new business formation: a case study of Northern Ireland. Environment and Planning, 15, 1395–1412.CrossRefGoogle Scholar
  27. Highfield, R., & Smiley, R. (1987). New business starts and economic activity: an empirical investigation. International Journal of Industrial Organization, 5, 51–66.CrossRefGoogle Scholar
  28. Hudson, J. (1989). The birth and death of firms. Quarterly Review of Economics and Business, 29, 68–86.Google Scholar
  29. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2), 231–254.CrossRefGoogle Scholar
  30. Johansen, S. (1991). Estimation and hypothesis testing of cointegrated vectors in Gaussian vector autoregressive models. Econometrica, 59, 1551–1580.CrossRefGoogle Scholar
  31. Lin, Z., Picot, G., & Compton, J. (2000). The entry and exit dynamics of self-employment in Canada. Small Business Economics, 15, 105–125.CrossRefGoogle Scholar
  32. Lindh, T., & Ohlsson, H. (1996). Self-employment and windfall gains: evidence from the Swedish lottery. Economic Journal, 106, 1515–1526.CrossRefGoogle Scholar
  33. Meager, N. (1994). Self-employment schemes for the unemployed in the European Community. In G. Schmid (Ed.), Labour market institutions in Europe (pp. 183–242). New York: M.E. Sharpe.Google Scholar
  34. Ng, S., & Perron, P. (2001). Lag length selection and the construction of unit root tests with good size and power. Econometrica, 69, 1529–1554.CrossRefGoogle Scholar
  35. Parker, S. C. (1996). A time series model of self-employment under uncertainty. Economica, 63, 459–475.CrossRefGoogle Scholar
  36. Parker, S. C., & Robson, M. T. (2004). Explaining international variations in self-employment: evidence from a panel of OECD countries. Southern Economic Journal, 71, 287–301.CrossRefGoogle Scholar
  37. Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75, 335–346.CrossRefGoogle Scholar
  38. Ray, R. N. (1975). Self-employed Americans in 1973. Monthly Labor Review, 98, 49–54.Google Scholar
  39. Reynolds, P. D., Storey, D. J., & Westhead, P. (1994). Cross-national comparisons of the variation in new firm formation rates. Regional Studies, 28, 443–456.CrossRefGoogle Scholar
  40. Robson, M. T. (1991). Self-employment and new firm formation. Scottish Journal of Political Economy, 38, 352–368.CrossRefGoogle Scholar
  41. Robson, M. T. (1996). Macroeconomic factors in the birth and death of UK firms: evidence from quarterly VAT registrations. The Manchester School of Economic and Social Studies, 64, 170–188.CrossRefGoogle Scholar
  42. Robson, M. T. (1998a). Self-employment in the UK regions. Applied Economics, 30, 313–322.CrossRefGoogle Scholar
  43. Robson, M. T. (1998b). The rise in self-employment amongst UK males. Small Business Economics, 10, 199–212.CrossRefGoogle Scholar
  44. Schneider, F. (2005). Shadow economies around the world: what do we really know? European Journal of Political Economy, 21, 598–642.CrossRefGoogle Scholar
  45. Steinmetz, G., & Wright, E. (1989). The fall and rise of the petty bourgeoisie: changing patterns of self-employment in the postwar United States. American Journal of Sociology, 94, 973–1018.CrossRefGoogle Scholar
  46. Storey, D. J. (1991). The birth of new firms—does unemployment matter? A review of the evidence. Small Business Economics, 3, 167–178.CrossRefGoogle Scholar
  47. Storey, D. J. (1994). Understanding the small business sector. London: Routledge.Google Scholar
  48. Storey, D. J., & Jones, A. M. (1987). New firm formation—a labour market approach to industrial entry. Scottish Journal of Political Economy, 34, 37–51.CrossRefGoogle Scholar
  49. Taylor, M. (1996). Earnings, independence or unemployment: why become self-employed? Oxford Bulletin of Economics and Statistics, 58, 253–266.CrossRefGoogle Scholar
  50. Thurik, A. R., Carree, M. A., van Stel, A. J., & Audretsch, D. B. (2008). Does self-employment reduce unemployment? Journal of Business Venturing, 23(6), 673–686.CrossRefGoogle Scholar
  51. Torrini, R. (2005). Cross-country differences in self-employment rates: the role of institutions. Labour Economics, 12, 661–683.CrossRefGoogle Scholar
  52. Van Praag, C. M., & Van Ophem, H. (1995). Determinants of willingness and opportunity to start as an entrepreneur. Kyklos, 48, 513–540.CrossRefGoogle Scholar

Copyright information

© Springer Science + Business Media, LLC 2011

Authors and Affiliations

  • Emilio Congregado
    • 1
  • Antonio Golpe
    • 1
  • André van Stel
    • 2
  1. 1.University of HuelvaHuelvaSpain
  2. 2.EIM Business and Policy ResearchZoetermeerthe Netherlands

Personalised recommendations