The Impact of Macro-Economic Conditions on Transitions into and Duration of Self-Employment
Date
2011
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Haverford College. Department of Economics
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Thesis
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The Holland Hunter 1943 Economics Department Thesis Prize
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eng
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Haverford users only
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Abstract
This paper aims to explore the nature of US self-employment, specifically the role of macro-economic conditions on the individual’s decision to become and remain self-employed. Using micro-level data from the Panel Study of Income Dynamics we first examine the impact of both state unemployment rates and state GDP growth rates on the individual’s propensity to transition into self employment. We find that self-employment is positively related to GDP growth, suggesting that demand prospects attract individuals to start their own business. However, for the male population, we find evidence that individuals create their own jobs as a reaction to weak labor market prospects. Unemployment rates are found to be correlated to the probability of transitioning into self-employment. Furthermore, once self-employed, an increase in unemployment rates is found to extend the individual’s duration in self-employment. Self-employment can therefore potentially be viewed as a refuge from unemployment. Therefore both “push” and “pull” motivations may be working concurrently within self-employment.