Thurik, A. Roy Carree, Martin A. van Stel, André J. Audretsch, David B.
Year of Publication:
Jena Economic Research Papers 2007,089
This paper investigates the dynamic relationship between self-employment and unem-ployment rates. On the one hand, high unemployment rates may lead to start-up activity of self-employed individuals (the refugee effect). On the other hand, higher rates of self-employment may indicate increased entrepreneurial activity reducing unemployment in subsequent periods (the entrepreneurial effect). This paper introduces a new two-equation vector autoregression model capable of reconciling these ambiguities and es-timates it for data from 23 OECD countries between 1974 and 2002. The empirical re-sults confirm the existence of two distinct relationships between unemployment and self-employment: the refugee and entrepreneurial effects. We also find that the entrepre-neurial effects are considerably stronger than the refugee effects.