Labour market institutions, learning and self-employment

Labour market institutions, learning and self-employment We develop a dynamic partial-equilibrium model to analyse how labour market institutions (wage compression, minimum wages, unemployment benefits, mobility costs and fixed-costs of self-employment) and learning affect who and when people become self-employed. We find that certain ability groups of workers become self-employed for both “carrot” and “stick” reasons: Some prefer self-employment to the low institutionalised wage, while others are not productive enough to qualify for a job at the institutionalised wage. Furthermore, wage compression and learning may give rise to a class of switchers who start in wage employment and later switch to self-employment. Several predictions of the model are consistent with observed empirical regularities, such as the existence of a group of low-skilled self-employed workers, the increasing propensity for self-employment over age groups and the larger spread in earnings among self-employed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Labour market institutions, learning and self-employment

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC.
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-008-9147-5
Publisher site
See Article on Publisher Site

Abstract

We develop a dynamic partial-equilibrium model to analyse how labour market institutions (wage compression, minimum wages, unemployment benefits, mobility costs and fixed-costs of self-employment) and learning affect who and when people become self-employed. We find that certain ability groups of workers become self-employed for both “carrot” and “stick” reasons: Some prefer self-employment to the low institutionalised wage, while others are not productive enough to qualify for a job at the institutionalised wage. Furthermore, wage compression and learning may give rise to a class of switchers who start in wage employment and later switch to self-employment. Several predictions of the model are consistent with observed empirical regularities, such as the existence of a group of low-skilled self-employed workers, the increasing propensity for self-employment over age groups and the larger spread in earnings among self-employed.

Journal

Small Business EconomicsSpringer Journals

Published: Oct 31, 2008

References

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