Survival of the Fittest? An Analysis of Self‐Employment Duration in Britain

Abstract

This paper uses data from the British Household Panel Survey to investigate the duration of self-employment spells in Britain. The results suggest that 40% of self-employment ventures started since 1991 have not survived their first year in business. Evidence is produced showing that a substantial proportion of self-employment spells are not terminated through bankruptcy, but through moves to alternative employment. The fittest, in terms of self-employment survival, are those with no previous unemployment experience but with some work experience, who quit their previous job, and who entered self-employment with some initial capital. Policy makers have implemented initiatives designed to encourage and facilitate the growth of small businesses and self-employment in Britain. Such enterprises are regarded as an important source of job creation and innovation. Despite this, little attention has focused on their success. This paper investigates issues concerning the success of the self-employed by examining the length of self-employment spells using life tables and Cox proportional hazard models, and the reasons given for leaving self-employment. Unlike most previous studies, it is concerned with the individual running the firm, allowing personal characteristics to influence the probability of survival. Uniquely, the data allow the separate analysis of voluntary and involuntary selfemployment terminations. All analyses are carried out separately for men and women using micro-level data from the British Household Panel Survey. Previous work analysing self-employment survival rates has mainly focused on personal asset and wealth holdings. Most is consistent with the hypothesis that entrepreneurial activity is restricted by liquidity constraints, either by preventing firm entry (Evans and Leighton, 1989; Evans and Jovanovic, 1989;