Self-employment Entry and Survival Evidence from Sweden

University dissertation from Uppsala : Nationalekonomiska institutionen

Abstract: Essay 1: Hurst and Lusardi (2004) use higher-order polynomials in wealth in estimating the relationship with entrepreneurship. They find evidence conflicting with the existence of extensive liquidity constraints in the United States. In this paper, their approach is replicated on Swedish data. A positive relationship between wealth and entrepreneurship is found, which supports the liquidity constraints hypothesis. Alternative methods attempting to handle the endogeneity problem and distinguish between absolute decreasing risk aversion and liquidity constraints give further support to the hypothesis. The paper suggests that there exist liquidity constraints in Sweden, which are possibly more extensive than in the United States.Essay 2: Displacement is expected to decrease the reservation wage of self-employment by decreasing earnings in paid employment and increasing the probability of unemployment. This paper examines whether displacement increases the probability of self-employment using propensity score matching on Swedish register-based data. The data include all individuals displaced due to plant closures in 1987 and 1988, and a random sample of 200,000 employed individuals. The results suggest that displacement almost doubles the probability of entering self-employment the year after displacement. A sub-sample analysis indicates that individuals with a potentially worse position on the labor market react more strongly to displacement in terms of entering self-employment.Essay 3: A large literature has studied the effect of displacement on labor market outcomes in general, but no one has evaluated how the displaced succeed as self-employed. This paper studies how the survival of the business is affected by displacement in connection to entry, using a discrete-time proportional hazard model on a matched sample of displaced and non-displaced individuals. The main result of the paper is that, as a consequence of previous displacement, the probability of switching from self-employment to paid employment decreases and the probability of switching to unemployment is unaffected.