The role of economic policy uncertainty in the US entrepreneurship-unemployment nexus
| Published date | 02 November 2015 |
| Pages | 352-366 |
| Date | 02 November 2015 |
| DOI | https://doi.org/10.1108/JEPP-01-2015-0004 |
| Author | James E Payne |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
The role of economic
policy uncertainty in the
US entrepreneurship-
unemployment nexus
James E. Payne
J. Whitney Bunting College of Business, Georgia College & State University,
Milledgeville, Georgia, USA
Abstract
Purpose –The purpose of this paper is to extend the literature on the entrepreneurship-
unemployment nexus to include the role of economic policy uncertainty in the causal dynamics.
Design/methodology/approach –The study utilizes the Toda-Yamamoto causality tests of a vector
autoregressive (VAR) model to infer the causal dynamics between the self-employment rate (SER), the
unemployment rate (UR), industrial production (IP), and the economic policy uncertainty index (EPUI)
in the case of the USA. In addition to the examination of the causal dynamics, generalize impulse
response analysis is undertaken to examine the role of unexpected shocks to the current and future
behavior of the variables specified in the VAR model.
Findings –The results reveal unidirectional causality from the SER, IP, and the EPUI to the UR.
An increase in the SER and IP lowers the UR while an increase in the EPUI raises the UR. The findings
also show unidirectional causality from the EPUI to IP in which an increase in the EPUI reduces IP.
Research limitations/implications –Due to data availability for higher frequency monthly data,
the self-employment data limits the analysis to 2000:1 to 2014:11.
Practical implications –The results reiterate the importance of minimizing economic policy
uncertainty as a means to facilitate effective plannin g by entrepreneurs and economic agents. Moreover,
policies designed to encourage entrepreneurship (self-employment) aids in the reduction of unemployment.
Social implications –Policies designedto encourage entrepreneurship also facilitate the reductionin
the UR. Also,greater policy transparency and stabilityhas a positive impact on entrepreneurialactivities.
Originality/value –This is the first study to incorporate the role of economic policy uncertainty in
the examination of the causal dynamics between entrepreneurship and unemployment.
Keywords Self-employment, Entrepreneurship, Unemployment, Economic policy uncertainty
Paper type Research paper
1. Introduction
With policies such as loan guarantee programs, technology-transfer and innovation
programs, state tax reciprocity agreements along with employment and small business
assistance programs, among others, policymakers view entrepreneurial activity and
small business formation as vital for job growth, economic development, and the
reduction in unemployment (Parker, 2009). From the early perspectives of Knight
(1921) and Oxenfledt (1943), entrepreneurship is considered an individual’s choice in the
evaluation of relative rates of return between unemployment, self-employment, and
wage employment. In the case of an individual confronted with unemployment and few
prospects for wage employment, the choice of entrepreneurship and self-employment is
essentially based on necessity compared to the alternative of unemployment. In such a
Journal of Entrepreneurship and
Public Policy
Vol. 4 No. 3, 2015
pp. 352-366
©Emerald Group Publishing Limited
2045-2101
DOI 10.1108/JEPP-01-2015-0004
Received 22 January 2015
Revised 2 February 2015
Accepted 2 February 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
JEL Classification —J00, L00, M2
352
JEPP
4,3
To continue reading
Request your trial