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Does self-employment reduce unemployment?

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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.

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A. Roy Thurik, Martin A. Carree, André J. van Stel, David B. Audretsch

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Adapt according to the presented license agreement and reference the original author.