5.2.1 The ambiguous link between self-employment and unemployment
Among economists, a lively discussion exists about how unemployment and self-employment rates are related. A possible positive link can be traced back to Oxenfeldt (1943) who argues that individuals in the labor force are confronted with three activity possibilities on how to allocate their available time: wage-employment, unemployment, and self-employment. Unemployment is assumed to represent the least at-
tractive option for the individual since it spends the least utility. Ac- cording to the so called ‘unemployment push hypothesis’ or “refugee effect” (Audretsch et al., 2015), high levels of unemployment rates then induce or “push” individuals with limited wage-employment prospects to entering into self-employment since opportunity costs of starting a business have decreased. A counterargument to this hypothesis may be that unemployment potentially results in a lack of wealth and credit constraints that may hinder unemployed individuals in becoming self- employed (Cressy, 2000; Hurst and Lusardi, 2004). The unemployed also tend to lack other characteristics needed in order to become self- employed, e.g. higher human capital levels, professional competencies, and networks, amongst many others (Caliendo et al., 2014; Caliendo et al., 2015).
The level of unemployment may also disproportionally affect self-em- ployment because of the chain of reasoning that explains the “unem- ployment pull hypothesis”. Economies that are characterized by low unemployment rates are typically those with higher economic develop- ment, i.e. higher demand and growth, and are therefore likely abundant in entrepreneurial opportunities. Higher self-employment rates then re- sult from demand-inducement. Conversely, high unemployment rates may be associated with low economic growth and fewer entrepreneurial
opportunities (Thurik et al., 2008; Audretsch et al., 2015).66
Empirical support for the unemployment-push hypothesis is, for ex- ample, provided by Evans and Leighton (1990) for the US, Guesnier (1994) and Lasch et al. (2007) for France, and Fritsch and Falck (2007) for Germany. Reynolds et al.’s (1995), Santarelli et al.’s (2009), and Audretsch et al.’s (2010) findings, however, point towards a negative re- 66 However, based on the Gibrat’s law, the growth of firms is independent from their size. An increasing number of small firms instead of large ones should therefore not affect unemployment (Sutton, 1997).
lationship between unemployment and self-employment for US, Italian, and German regions, respectively, which underlines the unemployment pull hypothesis. No clear evidence or insignificant results, on the con- trary are found by Armington and Acs (2002), Ritsilä and Tervo (2002), Sutaria and Hicks (2004), amongst others.
Using macro data from 23 OECD countries and applying a vector au- toregressive model, Thurik et al.’s (2008) results indicate that unem- ployment and self-employment simultaneously affect each other. Yet, the negative effect of changes in self-employment on subsequent changes in unemployment is stronger. That is, in addition to the two above- mentioned relationships between unemployment, economic growth and self-employment, dual and reverse causality may be present: Changes in self-employment can affect economic development and therefore un- employment (Van Stel et al., 2005). If founders enter the market, com- petition likely increases and positive productivity effects may emerge (Geroski, 1989; Acs and Audretsch, 2003), which can result in posi- tive employment effects depending on the quality of start-ups and the response of established companies to the competitive pressure caused
(Mueller et al., 2008; Fritsch and Storey, 2014). If these start-ups
hire more employees than established firms have to downsize due to the increased competition, this can lead to a reduction in unemploy- ment (“entrepreneurial effect”; Hart and Oulton, 1999; Pfeiffer and Reize, 2000; Lawless, 2014; Doran et al., 2016). However, as famously hypothesized by Shane (2009), both the survival rate and the employ- ment contribution of start-ups are rather low which would imply a very limited, if at all existing, unemployment lowering contribution of start- ups as only a limited number of high-growth firms is responsible for the majority of newly created jobs (Anyadike-Danes et al., 2009; Coad et al., 2014; Daunfeldt et al., 2015; Bravo-Biosca et al., 2016).
5.2.2 Gender gaps in self-employment
As discussed in Section 5.2.1, both a positive and a negative relation- ship between unemployment and self-employment may be present. One attempt to more closely investigate the presence of the one or the other effect and underlying causes is to take a closer look at the individual characteristics of the self-employed. Most empirical studies treat the individuals in their sample as a homogeneous group which is misleading in so far as there is ample evidence that especially the self-employed strongly differ in their abilities, possibilities and preferences, among other characteristics.
In this paper, we focus on gender gaps in self-employment. Despite a rising trend in females’ self-employment rate in recent decades (Devine, 1994; Koellinger et al., 2013), in the EU, for example, men are nearly twice as likely to enter into self-employment than women (see e.g. Leoni and Falk, 2010; Verheul et al., 2012; Koellinger et al., 2013; OECD, 2016).
The gender gap in the propensity to move towards self-employment may come as a surprise inasmuch women balance not only work and leisure but – to a larger extent than do men – also perform child care and housework (Lefebvre and Merrigan, 2008; Williams, 2012; Caliendo and Künn, 2015). Employers may moreover practice statistical dis- crimination towards women if their biographies include family-related interruptions which, ultimately, reduces their wage-employment oppor- tunities (Rosti and Chelli, 2005; Caliendo and Künn, 2015; Simoes et al., 2016). Especially unemployed women should therefore be more likely to become self-employed than men since self-employment pro- vides more flexible work arrangements and independence than does
traditional wage-employment (Edwards and Field-Hendrey, 2002).67 However, women and men may have different motives for becoming self-employed. While women tend to value flexible work arrangements, men start companies primarily because of the potentially higher finan- cial benefits (Wellington, 2006; Gurley-Calvez et al., 2009).
But why are women less likely to become self-employed than men? In a growing strand of literature possible reasons for this result are exam- ined. First, in both empirical and experimental studies it is observed that women tend to be more risk averse than men, and that they have a stronger dislike of competition (Dohmen et al., 2011; Charness and Gneezy, 2012). Since income from self-employment is very uncertain, a higher risk aversion has a lower probability of preferring and actually choosing an entrepreneurial career (Verheul et al., 2012).
Second, even if women become self-employed, they invest less capital and show a different borrowing behaviour than do men. In particular, they rely less on external capital but more on their own resources (Sena et al., 2012; Simoes et al., 2016). However, a sufficient investment of capital is an important prerequisite for the step into self-employment. Third, as shown by Koellinger et al. (2013), women’s networks are less diversified than those of men – e.g. because their relatively larger family commitments are accompanied by less pronounced networks and contacts. And these are moreover more likely to be found in the circle of family and friends than in business and work-related environments. Finally – with special focus on the group of unemployed – descriptive statistics show that although unemployed women are typically better educated than their male counterparts (Andersson Joona and Waden- sjö, 2008), they are still relatively more affected by long-term unem- 67
Indeed, among those women who are actually self-employed, about half work part-time whereas one third works from home (Fairlie and Robb, 2009).
ployment and more likely to be single parents. The latter features may lead to larger capital constraints and human capital depreciation and an absence of labour-related networks and, thus, less valuable business ideas (Caliendo and Künn, 2015).
5.3 Modeling the link between self-employment and un-