IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v163y2025ics0304405x24001892.html
   My bibliography  Save this article

From employee to entrepreneur: The role of unemployment risk

Author

Listed:
  • Hou, Ai Jun
  • Jonsson, Sara
  • Li, Xiaoyang
  • Ouyang, Qinglin

Abstract

We use Swedish administrative data to study the role of unemployment risk in salaried employees’ decisions to become entrepreneurs. Using the 2001 relaxation of Sweden’s last-in-first-out (LIFO) dismissal rule as an exogenous shock to unemployment risk, we find that employees facing increased unemployment risk are more likely to become entrepreneurs. The effect is more pronounced for employees with longer tenure, as they were newly exposed to greater unemployment risk. When we track entrepreneurs’ income dynamics and the performance of their ventures, we find that entrepreneurs who used to face greater unemployment risk do not underperform compared to other entrepreneurs. Our results provide some of the first empirical evidence of how employees respond to increased unemployment risk.

Suggested Citation

  • Hou, Ai Jun & Jonsson, Sara & Li, Xiaoyang & Ouyang, Qinglin, 2025. "From employee to entrepreneur: The role of unemployment risk," Journal of Financial Economics, Elsevier, vol. 163(C).
  • Handle: RePEc:eee:jfinec:v:163:y:2025:i:c:s0304405x24001892
    DOI: 10.1016/j.jfineco.2024.103966
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X24001892
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jfineco.2024.103966?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Entrepreneurship; Unemployment risk; Employment protection law; Entrepreneurial performance;
    All these keywords.

    JEL classification:

    • D16 - Microeconomics - - Household Behavior - - - Collaborative Consumption
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G50 - Financial Economics - - Household Finance - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:163:y:2025:i:c:s0304405x24001892. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.