Self-employment Decision Research Articles

Propensity for Self-Employment in a Model of Occupational Choice: Evidence from a Cohort of Recent University Graduates in Spain

This paper presents a microeconomic analysis of the occupational choices that individuals make after graduating from higher education. Specifically, a binomial logit model of the self-employment decision, which can be seen as a special case of a model of utility maximization, is estimated for a large, nationally representative sample of Spanish bachelor’s degree holders. The estimation of the logit model allows one to analyze the influence of the university degree and individual sociodemographic characteristics on the probability of becoming self-employed five years after graduation. Results show that graduates in Odontology, Physiotherapy, Architecture, Law, Fine Arts, Pharmacy, and Psychology are the most likely to become self-employed. Surprisingly, financially literate individuals (economics and finance-related undergraduate degree holders) are less likely to start their own businesses. The paper also shows that women are less likely to be self-employed than men, but those graduates whose mothers obtained a university degree have an increased likelihood of being self-employed. The paper highlights the need for career guidance for undergraduates contemplating a career in self-employment.

Resilient entrepreneurs? — revisiting the relationship between the Big Five and self-employment

The Big Five personality traits and their influence on entrepreneurial action have been repeatedly studied using a trait-based approach. The present paper partly deviates from this perspective by analysing the role of personality prototypes in relation to entrepreneurship. This person-centred approach suggests that combinations of Big Five traits form individual personalities. By using data from the German Socio-Economic Panel (SOEP), we show that at least three prototypes can be identified, one of which — the resilient type — can be hypothesized to significantly increase the likelihood of entrepreneurial action. Our regression results provide evidence of a positive impact of this prototype on the likelihood of and transitioning into self-employment but not the likelihood of exit. We also show that the prototyping approach explains individual self-employment decisions over and above what can already be explained by the profiling approach, another person-centred Big Five approach. The paper concludes with implications for policy and research.

FinTech Loans, Self-Employment, and Financial Performance

Leveraging data from a leading FinTech peer-to-peer lending platform in the United States, this study investigates the effect of an unsuccessful FinTech loan application on subsequent self-employment decisions. Our analysis shows that a failed loan application increases the probability of a transition out of self-employment by 22%, this effect is stronger for individuals in the lowest income decile. Additionally, securing a FinTech loan enhances self-employed individuals’ future financial performance. This enhancement is asymmetric, income enhancement is 3.11 larger for individuals in the lowest income decile, and credit-access enhancement is 1.85 times larger for individuals in the lowest credit-access decile.

Occupational sorting and the transmission of self-employment between generations

ABSTRACT Existing research has focused on factors explaining self-employment decisions, and the intergenerational transmission of self-employment has been posited as one explanatory factor. However, findings differ across countries, and the channels for such transmission remain unclear. Using data from the European Union Statistics on Income and Living Conditions, we analyse whether working in the same occupation as parents, conditional on parents’ self-employment, is related to being self-employed. Results show that working in the same occupation as parents is statistically and significantly related to being self-employed, which may indicate the existence of intergenerational transmission of self-employment. Furthermore, this relationship is especially significant between fathers and sons.

The persistence of China’s great famine on individuals’ choice to pursue self-employment

Self-employment is a field of special importance to developing countries in view of its positive role on socio-economic development. This study exploits a unique nationally representative database using the 1949–1985 China Demographic Data, the 2016 China Labour Force Dynamic Survey, and the 1959–1999 China Drought Disaster Data. Through a difference-in-differences estimation, we reveal that the Great Chinese Famine bear significantly upon individuals’ self-employment decisions. Specifically, a 1% increase in famine intensity results in a 3.89% and 2.31% decrease in the probability of self-employment and self-employed entrepreneurs entering the agricultural sector, respectively. Using rainfall as an instrument, we further show that the documented relationship is causal. Overall, we provide strong empirical evidence that famine exposure significantly affects one’s self-employment decisions, and can help design policies aiming to promote self-employment and the development of small businesses.

Dependent self-employment across Europe: involuntariness, country’s wealth and labour market institutions

ABSTRACT This article investigates the degree of involuntariness in the entrepreneurial activity of the dependent solo self-employed, as well as its association with the country’s wealth and labour market institutions. Using the unique information available in the 2017 European Labour Force Survey (EU-LFS) for 29 countries, we can properly identify the dependent solo self-employed and analyse to what extent they behave in accordance with an occupational choice model when making their self-employment decision. For that, we account for the reasons why they enter into self-employment (voluntarily or involuntarily either out of necessity or requested by the former employer). The results indicate that involuntary self-employment, mostly due to being required by previous employer, significantly increases the probability of being dependent solo versus non-dependent self-employed. The wealthiest countries have a lower incidence of this group of workers, mainly if they are involuntary self-employed. Moreover, labour market institutions that decrease the flexibility of paid employment tend to increase the incidence of dependent solo self-employment. These results point to this group of workers being particularly vulnerable with the degree of vulnerability significantly increasing for those self-employed with a lesser degree of occupational choice.

Collectivistic Personal Values, Entrepreneurial Intention, Motivation and Behavior

This study examines the role of entrepreneurial intentions and motivations in the interplay between collectivistic personal values and self-employment career options. Our analysis of a sample of individuals throughout two different points in time uncovers how and when collectivistic personal values (i.e., conservation and self-transcendence) lead to self-employment. Results suggest that entrepreneurial intentions function as a mechanism that triggers self-employment decisions for individuals with collectivistic personal values and that this effect is stronger when they engage in opportunity-based entrepreneurship. We conclude by discussing the implications of our results on the entrepreneurship literature and the values - intention - action links.

The Influence of University Students Inclination and Their Intentions towards Self-Employment Decision: Applied to Students of Entrepreneurship Clubs

The Influence of University Students Inclination and Their Intentions towards Self-Employment Decision: Applied to Students of Entrepreneurship Clubs

Understanding how and when personal values foster entrepreneurial behavior: A humane perspective

ABSTRACT This study aims to examine the role of entrepreneurial intentions and motivations in the interplay between humane-oriented personal values and entrepreneurial behavior. Using data from 593 individuals in 2010 and 2019, we uncover how and when humane-oriented personal values (conservation and self-transcendence) lead to self-employment. Results suggest that entrepreneurial intentions function as a mechanism that triggers self-employment decisions for individuals with humane-oriented personal values and that this effect is stronger when they engage in opportunity-based entrepreneurship. Finally, we discuss the implications of these findings for the literature on personal values and the intention-action link.

Short- vs Long-Term Intergenerational Correlations of Employment and Self-Employment in Europe

This paper analyzes the existence of short- and long-term intergenerational correlation of employment and self-employment in European countries, using data from the European Union Statistics on Income and Living Conditions. Using longitudinal data for the period 2003-2016, fixed effect estimates show a significant short-term correlation between the current employment status of parents and that of their children. However, short-term correlation of self-employment seems to be driven only by father-son correlations. Conversely, using the special module on Intergenerational Transmissions for the year 2011, estimates show a strong and significant correlation between respondents' self-employment status, and that of their parents when respondents were 14 years old. This suggests that self-employment decisions are not related to short-term family labor supply decisions, but to long-term intergenerational transmission.

Personal Wealth and Self-Employment

We examine how wealth windfalls affect self-employment decisions using data on cash payments from claims on Texas shale drilling to people throughout the United States. Individuals who receive large wealth shocks (greater than $50,000) have 51% higher self-employment rates. The increase in self-employment rates is driven by individuals who lengthen existing self-employment spells, and not by individuals who leave regular employment for self-employment. Moreover, the effect of wealth reverts for individuals whose payments run out. Rather than alleviating a financial constraint, our evidence suggests that unrestricted cash windfalls affect self-employment decisions primarily through self-employment’s non-pecuniary benefits.

Trustworthiness of local government, institutions, and self-employment in transitional China

In this paper, we investigate the relationship between the trustworthiness of the local government and individuals' self-employment decision by using data from the China Family Panel Studies. We find that the trustworthiness of the local government has a statistically significant role in individuals' decision about self-employment and that the marginal effect on self-employment is context dependent and increases with the quality of the institutions. The trustworthiness of the local government prompts self-employment in provinces where the market institutions are well developed and suppresses it in other regions. Heterogeneity concerns on rural-urban and generations are also explored. We also find that the quality of market institutions increases self-employment, and the scale increases with the trustworthiness of the local government.

Entry into self-employment and individuals’ risk-taking propensities

Most of the existing empirical literature on self-employment decisions assumes that individuals’ risk-taking propensities are stable over time. We allow for endogeneity on both sides when examining the relationship between individual risk-taking propensities and entry into self-employment. We confirm that a greater risk-taking propensity is associated with a higher probability of entering self-employment. However, we also find evidence that entering self-employment is associated with a significant and substantial increase in an individual’s propensity to take risks. Our findings add to the growing evidence that risk-taking propensities are not only inborn, but also determined by environmental factors.

Effects of health insurance on labour supply: a systematic review

PurposeThe purpose of this paper is to provide a systematic review of empirical evidence on the labour market effects of health insurance from the supply side.Design/methodology/approachThe study covers the largest peer-reviewed and working paper databases for labour economics and health studies. These include Web of Science, Google Scholar, Pubmed and the most popular economics working paper sources such as NBER, ECONSTOR, IDEAS, IZA, SSRN, World Bank Working Paper Series. The authors follow the PRISMA 2009 protocol for systematic reviews.FindingsThe collection includes 63 studies. The outcomes of interest are the number of hours worked, the probability of employment, self-employment and the level of economic formalisation. The authors find that the current literature is vastly concentrated on the USA. Spousal coverage in the USA is associated with reduced labour supply of secondary earners. The effect of Medicaid in the USA on the labour supply of its recipients is ambiguous. The employment-coverage link is an important determinant of the labour supply of people with health problems and self-employment decisions. Universal coverage may create either an incentive or a disincentive to work depending on the design of the system. Finally, evidence on the relationship between health insurance and the level of economic formalisation in developing countries is fragmented and limited.Practical implicationsThis study reviews the existing literature on the labour market effects of health insurance from the supply side. The authors find a large knowledge gap in emerging economies where health coverage is expanding. The authors also highlight important literature gaps that need to be filled in different themes of the topic.Originality/valueThis is the first systematic review on the topic which is becoming increasingly relevant for policy makers in developing countries where health coverage is expanding.

Regional differences in self-employment in China

This paper investigates the impact of personal characteristics and institutional environment on the decision to be self-employed in China. It is shown that a difference in the likelihood of being self-employed exists between urban and rural areas. Our results show that institutional differences between rural and urban areas influence self-employment decisions. Factors that exert a consistent impact regardless of the local institutional environment are marriage, education, money spent on weddings and gifts, economic openness, and accessibility of information. The impact of other factors differs across rural and urban areas. These factors include family ownership of real estate, experience, gender, population density, the management capacity of local government, and the development of private economy in the local community.

Push and pull factors and Hispanic self-employment in the USA

This study examines the main push and pull factors driving Hispanic self-employment in the USA by modeling the self-employment decision as a function of sectoral earnings differences, country of origin, and other factors. Findings indicate that a main reason Hispanics engage in self-employment is they can earn more working for themselves than in wage/salary work. Immigrants appear to be pushed into self-employment as a result of limited opportunities in the wage work sector. Although low relative earnings in wage/salary work could push workers with limited English proficiency into self-employment, our findings indicate barriers to this. Results suggest that workers pulled into self-employment are those with more work experience and a college degree. Workers who originate from Southern South America and Colombia have relatively high self-employment rates, while Mexico-origin workers have relatively low self-employment rates. We also uncover differences across Hispanic origin groups in terms of the influence of gender, education, and personal wealth on self-employment participation.

Does entrepreneurship pay for women and immigrants? A 30 year assessment of the socio-economic impact of entrepreneurial activity in Germany

Using data from the German Socio-Economic Panel from 1984 to 2012, we explore income effects of self-employment for females and migrants. Controlling for the selection into self-employment, we differentiate the overall earnings differential between the self-employed and the wage-employed into an endowment effect (they are equipped with characteristics that positively affect earnings in either occupation) and a treatment effect (the income effect solely due to the decision for self-employment). We find that women exhibit both a lower treatment effect and a lower endowment effect than men. Migrants benefit much more from entrepreneurial activities than Germans, having a significantly higher treatment effect. Among the countries of origin, Turkish migrants benefit the most from their self-employment decision, while southern Europeans exhibit the lowest income relevant skills.

Where are all the self-employed women? Push and pull factors influencing female labor market decisions

Previous research focuses on factors that influence self-employment participation, in part because entrepreneurship has been associated with economic growth. This literature has tended to focus only on men or the comparison of women to men, while ignoring substantial heterogeneity in employment decisions among women. By investigating the impact of individual, household, and local economic and cultural characteristics on the labor market outcomes of different groups of women, we get a more comprehensive picture of their self-employment decision. Recognizing self-employment as one of multiple labor market choices, we use multinomial logit and two confidential, geocoded micro-level datasets to study women`s career choices in urban areas. We find that the effects of various push and pull factors differ between married and unmarried women. In particular, more progressive gender attitudes pull married women into self-employment, while household burdens associated with children push them into self-employment. For unmarried women, the local business climate and individual characteristics have the strongest influence. In both cases, the motivations for women are quite different than men.

Sri Lankan entrepreneurs in Australia: chance or choice?

Purpose – Ethnic entrepreneurship is, and always has been, a means of survival. However, there is limited literature on ethnic entrepreneurship in Australia and therefore, an understanding of ethnic entrepreneurs’ motivations to become self-employed. The purpose of this paper is to report the influential factors in the decision to engage in self-employment through case studies of members of Melbourne’s Sri Lankan community informed by the mixed embeddedness approach. Design/methodology/approach – The mixed embeddedness approach frames the study where the authors examine the motivations for business of five Sri Lankan entrepreneurs. Narratives are used to construct individual case studies, which are then analyzed in terms of the motivations for, resources used and challenges faced on the entrepreneurial journey. Findings – For these ethnic entrepreneurs, their entrepreneurial activity results from a dynamic match between local market opportunities and the specific ethnic resources available to them at the time of founding. The self-employment decision was not prompted by a lack of human capital but an inability to use that human capital in alternative means of employment at specific points in time. Moreover the authors highlight the importance of social and cultural capital as resources used to overcome challenges on the entrepreneurial journey. Originality/value – In this community, entrepreneurship was not a result of a lack of human capital but how it was utilized in combination with social and cultural capitals in the given opportunity structure. The mixed embeddedness approach enables the uncovering of how ethnic network ties were used in light of the opportunities available to build entrepreneurial activity.

Revisiting native and immigrant entrepreneurial activity

Entrepreneurial activity differs substantially across immigrant groups in the USA, but relating self-employment rates in the US to home-country self-employment shares has provided inconclusive results in previous studies. This paper offers new evidence on the relationship between native self-employment and the self-employment decision of immigrants and their descendants. We argue that the previous literature has neglected to account for different proxies of entrepreneurial behavior and for determinants of self-employment in the country of origin. We find mixed evidence of a significant relationship between entrepreneurial activity of US immigrants and two different measures of entrepreneurial activity in their respective countries of origin. Our findings suggest that differences in self-employment across immigrants of different origin are to some degree an expression of the behavior acquired under varying economic and institutional environments.