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05/11/2010

The Economics of Self-Employment

The Economics of Self-Employment

Staff:
 Dr Chris Dawson (Course teacher); room F4;
cgd@aber.ac.uk
Texts:

Black, J., D. de Meza and D.Jeffreys (1996), House Prices, the Supply of
Collateral and the Enterprise Economy, Economic Journal, 106(434): 60-75.

Blanchflower, D.G. and A.J. Oswald (1998), What Makes an Entrepreneur?
Journal of Labour Economics, 16(1): 26-60.

Georgellis, Y., Sessions, J.G. and Tsitsianis, N. (2005), Windfalls, Wealth and the
Transition to Self-Employment, Small Business Economics, 13(2):407-428.

Arabsheibani, G., De Meza, D., Maloney, J. and B. Pearson (2000), And a Vision
Appeared Unto them of a Great Profit: Evidence of Self-Deception Among the
Self-Employed, Economics Letters, 67(1): 35-41.

Dawson, C., A. Henley & P. Latreille (2009).”Why Do Individuals Choose SelfEmployment?” IZA Discussion Paper, No. 3974.

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 Accounts for approximately 12.  Kirznerian – perceiving and seizing new profit opportunities 2 .  Schumpeterian entrepreneur – innovative activity.05/11/2010 The Economics of Self-Employment Why study the self-employed?  Create new employment opportunities  Innovative activity – transmission mechanism for economic growth.  The Economics of Self-Employment  Who are entrepreneurs?  Definitional understanding – undertaking a commercial venture.5% of the workforce.  Knightian – risk taking.

Issues – The Economics of Self-Employment   Characteristics of entrepreneurship and the environment of entrepreneurship. human and social capital  Earnings Differential  Human Capital – Age and Experience  Education  Social Capital 3 . Relative earnings.05/11/2010 The Economics of Self-Employment   Labour economists rely predominately on selfemployment data.

1 3.05/11/2010 The Economics of Self-Employment  Personal characteristics and family circumstances  Marital Status  Ill Health and Disability  Family Background The Economics of Self-Employment  Psychological factors  Need for Achievement  Love of Independence and Job Satisfaction Reason (percentage) To be independent/a change Wanted more money For better conditions of work Family commitments/wanted to work at home Opportunity arose – capital. equipment available Saw the demand Joined the family business Nature of the occupation No jobs available (locally) Made redundant Other reasons No reason given” N All 30.5 2.0 t-test pvalue 0.000 0.8 6.4 17507 12. space.7 8.7 2.7 5.5 4925 0.6 22.6 3.000 0.9 21.7 11.6 16.6 2.000 12.000 0.000 7.8 3.7 12582 12.0 Women 24.4 9.2 21.0 4.3 14.4 Men 32.1 8.6 13.8 6.9 8.4 3.000 0.2 12.5 6.5 0.5 3.291 0.030 0.3 14.025 0.5 8.000 0.6 21.000 4 .6 7.722 0.

05/11/2010 The Economics of Self. 5 . (2008).5% of males students 24% of female students. Decomposition techniques are applied to survey data of 649 students from across Europe. .Employment Over Optimism Unrealistic Optimism Credit Rationing High/Poor Quality Entry Rates Negative Expected Returns CM – Excess Lending High Business Failure Rates The Economics of Self-Employment  Attitudes Towards Risk Henley et al.Risk attitudes explains approximately 50% of the total gap in entrepreneurial intent across gender. Aspirations 40.

05/11/2010 The Economics of Self-Employment  Entrepreneurship and Macroeconomic Factors  Changing Industrial Structure 60 40 20 0 Employment by Industry 80 Employment by Industry 1995 2000 Time: Yearly periods MANU SERV 2005 CONS Data Source: LFS : Quarterly: four quarter averages from June 1994 .)  Unemployment  Interest  Rates Regional Factors 6 .May 2005 The Economics of Self-Employment  Entrepreneurship and Macroeconomic Factors (cont.

05/11/2010 The Economics of Self-Employment  Self-employment in the UK North East 8.00 6.00 14.00 8.10% 0.30% South East 14.00 10. four quarter averages 7 .00 16.00 12.00 % % % % % % % % % The Economics of Self-Employment Explaining the variations: 1) Unemployment  16 Self-employment vs.May 2005.50% South West 14.00 4.30% Scotland 9. Unemployment in UK Regions 14 London South West South East East 10 12 East Midlands Wales West Midlands North West Yorkshire and the Humber Scotland 8 North East 3 4 5 6 Unemployment rate: Working age people SELF SELF1 7 Fitted values Fitted values Data Source: QLFS: June 2004 .30% East 13.70% London 15.60% Wales 11.40% West Midlands 11.70% 11% Yorkshire and The Humber North West 11.00 2.90% East Midlands 12.

Average House Prices in UK Regions London 14 South West South East East 12 East Midlands Wales West Midlands North West 8 10 Yorkshire and the Humber North East 100000 150000 200000 250000 Average Regional House Prices SELF 300000 Fitted values Data Source: QLFS: June 2004 . four quarter averages and ASHE .05/11/2010 The Economics of Self-Employment 2) Capital Constraints: 16 Self-employment vs.workplace analysis 2006 8 .May 2005. Gross Annual Pay in UK Regions London South West 14 South East East 10 12 East Midlands Wales West Midlands North West Yorkshire and the Humber Scotland 8 North East 20000 22000 24000 26000 Gross Annual Pay SELF 28000 30000 Fitted values Data Source: QLFS: June 2004 . four quarter averages and Land Registry HPI 2006 The Economics of Self-Employment 3) Aggregate Demand 16 Self-employment vs.May 2005.

0 Income Differential 6 2 4 Age 36 1 8 Labour Market Experience 7 1 0 Education 25 11 14 Married/Working Spouse 20 4 3 Ill Health/ Disability 4 2 0 Risk 0 3 0 Self-employed Parent 17 2 0 Technological Progress 2 4 2 Unemployment 24 15 8 Urban Location 5 0 3 Government Benefits 2 2 0 Interest Rate 0 7 2 Personal Wealth 18 0 2 9 . + No. - No.05/11/2010 The Economics of Self-Employment  Summary of Determinants of Entrepreneurship Explanatory Variable No.