Self-employment status: the role of state dependence and initial circumstances
This paper uses British longitudinal data to model self-employment status. In contrast to previous studies, the modelling approach accounts for state-dependence and unexplained heterogeneity effects. The paper concludes that state dependence is an important influence on self-employment choice. Someone self-employed last year is, controlling for observable and unobservable influences, 30 percentage points more likely to be self-employed this year than someone who was in paid employment a year ago. We also find significant individual heterogeneity in the probability of selfemployment, with significant explained influences operating through gender, educational attainment, occupation, spouse’s self-employment, and parental and educational background. Significant, though quantitatively smaller influences come though initial financial circumstance and current house pricemovements. Local labour market shocks do not appear significantly to influence self-employment choice. This we conclude that the autoregressive nature of self-employment time-series would appear to be a structural rather than a cyclical phenomenon.
Small Business Economics
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