EARNINGS, INDEPENDENCE OR UNEMPLOYMENT: WHY BECOME SELF‐EMPLOYED?
| Date | 01 May 1996 |
| Author | Mark P. Taylor |
| Published date | 01 May 1996 |
| DOI | http://doi.org/10.1111/j.1468-0084.1996.mp58002003.x |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 58,2(1996)
0305-9049
EARNINGS, INDEPENDENCE OR
UNEMPLOYMENT: WHY BECOME
SELF-EMPLOYED?
Mark R Taylor
INTRODUCTION
Why become self-employed? From an economist's point of view, an indi-
vidual would only choose self-employment over employment to maximize
utility, but what are the key factors causing the utility flow from self-
employment to exceed that from paid employment? There appears to be
three major considerations; earnings, independence and unemployment.
This paper attempts to estimate the effects of these considerations on
individuals becoming self-employed while controlling for certain indivi-
dual characteristics using the first wave of a new large scale British panel
data set, the British Household Panel Study (BHPS), and a simple sample
selection model. The results suggest that the independence self-employ-
ment offers is a key attraction, and that self-employment appears to be a
response to high labour demand. Individuals also appear to be attracted
to self-employment because of higher expected earnings relative to
employment. Much debate in the literature has focused on the role of
macro-economic effects, particularly unemployment, on determining self-
employment levels, but there is little consensus on the influence of unem-
ployment rates and experience. The work of Acs, Audretsch and Evans
(1994), Bogenhold and Staber (1991) and Evans and Leighton (1989)
provide evidence supporting the unemployment push theoly, while that of
Blanchflower and Oswald (1991a) points toward the prosperity pull
argument.' Micro-level analysis of the self-employed has provided support
This work is part of the scientific programme of the ESRC Research Centre on Micro-
social Change based at the University of Essex. The support of the ESRC and the University
of Essex is gratefully acknowledged. I am also grateful for very helpful discussions with Tim
Hatton, Ken Burdett, Mick Keen, Tony Shorrocks and the comments of two anonymous
referees. I, of course, remain solely responsible for any errors. Data for the analysis are
available from the ESRC Data Archive at the University of Essex. An earlier version of this
paper has been circulated as an ESRC Research Centre on Micro-Social Change Working
Paper.The unemployment push theory suggests that high unemployment levels result in few
offers of paid employment, and hence that many may prefer self-employment to spending
long periods inactive and searching for work. The prosperity pull theory argues that when
unemployment is low, offers of paid employment are frequent and many may take the self-
employment option knowing that if the venture fails another job offer will not be far away.
253
© Blackwell Publishers 1996. Published by Blackwell Publishers, 108 Cowley Road, Oxford 0X4 1JF,
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