The Self-Employment Option in Rigid Labor Markets: An Empirical Investigation
Abstract: This paper studies selection into and returns to self-employment in labor markets with stringent employment protection. Using Spanish administrative panel data, we characterize self-employment dynamics in the presence of rigidities that affect workers? outside options. We document the negative selection into self-employment when workers enter from unemployment, and the pro-cyclicality of the decision. We identify career heterogeneity in the data and estimate a rich life-cycle income process. The self-employed face shocks with smaller variances but lower returns compared to fixed-term workers?the prevalent contract out of unemployment. These facts call for a revision of active labor market policies in place.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1264.pdf
Part of Series: International Finance Discussion Papers
Publication Date: 2019-11-14
Pages: 49 pages