4.5.1 Data
The data I use comes from the “Muestra Continua de Vidas Laborales” (MCVL) or the Longitudinal Sample of Working Lives, which is a 4% non-stratified random drawn from the Spanish Social Security records. This includes individuals that are working or receiving unemployment benefits or pension at any time during the reference year. New individuals that are workers or pensioners for the first time are introduced in the sample every year to replace those who cease to have any relationship with the
7Specifically,Topel and Ward(1992) restrict the analysis to individuals observed over at least 13
years.
Social Security and as a mechanism of maintaining the 4% representative level given the ongoing increase of the reference population.
Note that although the MCVL includes information on active (workers and unem- ployment benefit recipients) and non-active (those in receipt of a pension and indi- viduals paying national insurance without being employed) populations these do not represent the total active and inactive labour populations. It excludes some of the civil servants paying into a different social assistance system (i.e., “Clases Pasivas y Mutualidades”) and unemployed people that do not get any benefit from the Social Security in the first place, and it also ignores many other non-active groups such as students or individuals taking parental leave of absence. However, the Social Security System covers 95% of the employment relationships in Spain (Durán,2007).
The longitudinal character of the database allows the employment relations of individuals to be tracked from the first year they are included onwards, but it also contains retrospective information about their previous relationships with the Social Security that can be used to reconstruct their entire employment history. Studying labour market conditions prior to the initial year 2005 can be nevertheless problematic, since the sample will no longer represent the reference population at the given year, especially the further we look back in time (Felgueroso et al., 2010). In this study I use MCVL waves from 2005 to 2010. Details of the matching and construction of the dataset are described in the appendix B.
From this initial dataset I select individuals that have been in employment at any time from 2005 to 2010. In particular, I focus on paid-employed workers contributing to the general regime of the Social Security System. In other words, removing those who pay their contributions through a special agreement and, therefore, do not represent
Specifically, I take the definition in the Spanish Security System that establishes the criteria on who is required to contribute to the special regime as a self-employed per- son. So, the self-employed represent workers above the age of 18 who run a lucrative economic activity on their own and without being tied to any labour contract as an employee. However, it also includes managing directors of limited companies (“so- ciedades mercantiles capitalistas”) that conduct their activities on a regular basis and own the direct or indirect control of the business. Hence, it constitutes an heterogen- eous group of individuals working on their account (Hurst and Pugsley,2011;Parker,
2007): from skilled craftsmen and professionals that employ no or a low number of employees, to individuals creating more complex (and usually bigger) organisations. This reveals that the motivations, growth ambitions and strategic focus, for instance, could substantially differ within the group, and many of them, as many authors criti- cise, may not match with the traditional traits that entrepreneurship theories claim to characterise entrepreneurs. In contrast, self-employment as a measure of the incidence of entrepreneurship is appealing and widely used in this context (Elfenbein et al.,2010;
Parker, 2009b; Sorensen, 2007; Nanda and Sorensen, 2010; Hyytinen and Maliranta,
2008) because it is easy and objective to apply, especially when the focus of analysis is at the individual level and regarding the employment status, like in the present one.
I use the common approach of excluding individuals working in the agriculture sector from the analysis (Hurst and Lusardi,2004;Sorensen,2007;Sorensen and Phil- lips, 2011; Parker and Robson, 2004; Meager, 1992; Blanchflower, 2004), since self- employment rates are particularly high in this sector and cannot be readily compared to the rest of the industries. Moreover, higher self-employment entry rates from and into the agricultural sector over this period, and especially since around 2008, are highly attributed to changes in regulations. Since 2008 individuals working in the agriculture sector and owning the working farm have been introduced into the Social Security regime for self-employed from their previous special regime for farmers (by the Law 18/2007). Finally, I restrict the sample to the employment in the private sector.
average 15.9 times (i.e., quarters) over the whole period (i.e. 13,387,321 observations in total). Naturally, this sample gets reduced when introducing covariates in the regression analysis that contain missing values.
4.5.2 Descriptive Statistics
I begin by looking at how the self-employment entry rate evolves over the period 2005- 2010. Figure 4.3 presents the number of employees that becomes self-employed as a fraction of the employment in the private sector the quarter before the entry. As the graph shows entry into self-employment peaks in 2007, noticeably declines since the start of the recession in mid-2007s and remains stable from 2009 onwards. Compared to the trend in unemployment shown in figure4.2, this decline appears to correspond to the time that the unemployment rate starts to rise steeply. Similarly, the later fairly steady self-employment entry rate occurs whilst there is a slowing down in the rise in unemployment. As expected, the pattern of the self-employment rate shown in figure
4.4looks very different and confirms the importance of making the necessary distinction between flow and stock analyses. The self-employment rate actually increases as the labour market conditions worsen over the recession, which is driven by a deeper decline in the stock of employees relative to the decrease in the number of self-employed in the labour market. Further insights about the exit rates from self-employment compared to paid-employment however, although interesting, lie outside the scope of this study. A closer look at self-employment entry rates by the size of their former employer (figure 4.3) confirms that most self-employed people transition from small firms. The fraction of the self-employed coming from the smallest firm size categories, however, decreases more sharply than the rest, yet they still constitute the main source of
the crises are apparent, caused, presumably, by the downsizing and closing of firms during the latter period. A larger share of permanent workers together with longer average tenure and labour market experiences indicate that dismissals are concen- trated among youngest workers with temporary contracts. While the distribution of employment across firm size categories shifts towards both extremes, that is, to the smallest and largest size categories, suggesting that middle-sized businesses have mi- grated into the smaller firm categories over time, I cannot assess the importance of new firm entries and exits in these changes. As expected, the ratio of dismissals to voluntary resignations increases as the recession worsens.