The labour market consequences of self-employment spells: European evidence

Ari Hyytinen; Petri Rouvinen

doi:10.1016/j.labeco.2007.02.001

The labour market consequences of self-employment spells: European evidence

Ari Hyytinen, Petri Rouvinen^*

^*Corresponding author for this work

Not published at VTT

Research output: Contribution to journal › Article › Scientific › peer-review

50 Citations (Scopus)

Abstract

We examine how those re-entering paid-employment after a brief self-employment spell fare upon return using data from the European Community Household Panel. Unconditionally, those re-entering paid-employment appear to have considerably lower wages than those staying in the wage sector. This difference appears to be larger in Europe than in the US. Conditional analysis suggests, however, that the difference is more apparent than real: It seems that Europeans select negatively into (and possibly out-of) self-employment, i.e., the likelihood of entering (and exiting) entrepreneurship correlates negatively with unobserved ability and/or in-paid-employment productivity. Our analysis of non-wage outcomes indicates that the selection is mostly involuntary, and that for highly educated men, the brief self-employment spells are unemployment in disguise.

Original language	English
Pages (from-to)	246-271
Journal	Labour Economics
Volume	15
Issue number	2
DOIs	https://doi.org/10.1016/j.labeco.2007.02.001
Publication status	Published - Apr 2008
MoE publication type	A1 Journal article-refereed

Funding

Hundreds of thousands of Europeans enter self-employment each year, but self-employment spells are typically brief. Many of the new entrepreneurs therefore exit soon after entry. How do those who return to paid-employment fare in the labour market? Many European policy-makers appear to know the answer: those leaving self- for paid-employment after an entrepreneurial spell are not given a proper second chance. This paper investigates whether this perception of the consequences of the short self-employment spells is supported by the European Community Household Panel (ECHP), which allows us to track flows from paid-employment to self-employment and unemployment as well as the subsequent returns back to the wage sector. ACKNOWLEDGEMENTS: We thank Jaakko Pehkonen, the editor, and two anonymous referees for useful comments. Financial support from Tekes, the National Technology Agency of Finland, is gratefully acknowledged. Rouvinen's work for this paper is partly conducted in the context of the 2004–5 European Forum lead by Rikard Stankiewicz and Aldo Geuna of the Robert Schuman Centre for Advanced Studies at the European University Institute. Rouvinen gratefully acknowledges support of the Academy of Finland and the Yrjö Jahnsson Foundation. A prior version has been published as EUI Working Paper No. 2006/08. The views expressed are those of the authors and do not necessarily reflect the views of the Bank of Finland or ETLA.

Keywords

Earnings
Job mobility
Selection
Self-employment
Wage differentials

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.labeco.2007.02.001

Cite this

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title = "The labour market consequences of self-employment spells: European evidence",

abstract = "We examine how those re-entering paid-employment after a brief self-employment spell fare upon return using data from the European Community Household Panel. Unconditionally, those re-entering paid-employment appear to have considerably lower wages than those staying in the wage sector. This difference appears to be larger in Europe than in the US. Conditional analysis suggests, however, that the difference is more apparent than real: It seems that Europeans select negatively into (and possibly out-of) self-employment, i.e., the likelihood of entering (and exiting) entrepreneurship correlates negatively with unobserved ability and/or in-paid-employment productivity. Our analysis of non-wage outcomes indicates that the selection is mostly involuntary, and that for highly educated men, the brief self-employment spells are unemployment in disguise.",

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note = "Funding Information: Hundreds of thousands of Europeans enter self-employment each year, but self-employment spells are typically brief. Many of the new entrepreneurs therefore exit soon after entry. How do those who return to paid-employment fare in the labour market? Many European policy-makers appear to know the answer: those leaving self- for paid-employment after an entrepreneurial spell are not given a proper second chance. This paper investigates whether this perception of the consequences of the short self-employment spells is supported by the European Community Household Panel (ECHP), which allows us to track flows from paid-employment to self-employment and unemployment as well as the subsequent returns back to the wage sector. Funding Information: ACKNOWLEDGEMENTS: We thank Jaakko Pehkonen, the editor, and two anonymous referees for useful comments. Financial support from Tekes, the National Technology Agency of Finland, is gratefully acknowledged. Rouvinen's work for this paper is partly conducted in the context of the 2004–5 European Forum lead by Rikard Stankiewicz and Aldo Geuna of the Robert Schuman Centre for Advanced Studies at the European University Institute. Rouvinen gratefully acknowledges support of the Academy of Finland and the Yrj{\"o} Jahnsson Foundation. A prior version has been published as EUI Working Paper No. 2006/08. The views expressed are those of the authors and do not necessarily reflect the views of the Bank of Finland or ETLA. ",

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AB - We examine how those re-entering paid-employment after a brief self-employment spell fare upon return using data from the European Community Household Panel. Unconditionally, those re-entering paid-employment appear to have considerably lower wages than those staying in the wage sector. This difference appears to be larger in Europe than in the US. Conditional analysis suggests, however, that the difference is more apparent than real: It seems that Europeans select negatively into (and possibly out-of) self-employment, i.e., the likelihood of entering (and exiting) entrepreneurship correlates negatively with unobserved ability and/or in-paid-employment productivity. Our analysis of non-wage outcomes indicates that the selection is mostly involuntary, and that for highly educated men, the brief self-employment spells are unemployment in disguise.

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The labour market consequences of self-employment spells: European evidence

Abstract

Funding

Keywords

UN SDGs

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