IDEAS home Printed from https://ideas.repec.org/p/eec/wpaper/1319.html
   My bibliography  Save this paper

From complements to substitutes: Structural breaks in the elasticity of substitution between paid-employment and self-employment in the US

Author

Listed:
  • Emilio Congregado

    (Universidad de Huelva, Spain. Erasmus University of Rotterdam, The Netherlands)

  • Vicente Esteve

    (Universidad de Valencia, Universidad de Alcalá and Universidad de La Laguna, Spain)

  • Antonio A. Golpe

    (Universidad de Huelva, Spain)

Abstract

This paper provides estimates of the elasticity of substitution between operational and managerial jobs in the US economy during the years 1969-2011, derived from an aggregate CES production function. Estimating the long-term relationship between (the log of) the aggregate employment/self-employment ratio and (the log of) the returns from paid-employment relative to self-employment and testing for structural breaks, we report different estimates of the elasticity of substitution in each of the three regimes identified. Our results help to understand and interpret one of the most intriguing aspects in the evolution of self-employment rates in developed countries: the reversal of the trend in self-employment rates. Our estimates show that a higher level of development is associated with a greater number of entrepreneurs and smaller firms. Some rationales for understanding the growth of the elasticity between paidemployment and self-employment are also suggested.

Suggested Citation

  • Emilio Congregado & Vicente Esteve & Antonio A. Golpe, 2013. "From complements to substitutes: Structural breaks in the elasticity of substitution between paid-employment and self-employment in the US," Working Papers 1319, Department of Applied Economics II, Universidad de Valencia.
    • Handle: RePEc:eec:wpaper:1319
    as

    Download full text from publisher

    File URL: http://repecsrv.uv.es/paper/RePEc/pdf/eec_1319.pdf
    File Function: First version, 2013
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kejriwal, Mohitosh & Perron, Pierre, 2010. "Testing for Multiple Structural Changes in Cointegrated Regression Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(4), pages 503-522.
    2. Pierre Perron & Serena Ng, 1996. "Useful Modifications to some Unit Root Tests with Dependent Errors and their Local Asymptotic Properties," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(3), pages 435-463.
    3. Simon C. Parker & Martin T. Robson, 2004. "Explaining International Variations in Self-Employment: Evidence from a Panel of OECD Countries," Southern Economic Journal, John Wiley & Sons, vol. 71(2), pages 287-301, October.
    4. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 35-78.
    5. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    6. Zoltan Acs, 2008. "How is Entrepreneurship Good for Economic Growth?," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 21, pages 291-301, Edward Elgar Publishing.
    7. Concepción Román & Emilio Congregado & José Millán, 2011. "Dependent self-employment as a way to evade employment protection legislation," Small Business Economics, Springer, vol. 37(3), pages 363-392, October.
    8. Schultz, T Paul, 1990. "Women's Changing Participation in the Labor Force: A World Perspective," Economic Development and Cultural Change, University of Chicago Press, vol. 38(3), pages 457-488, April.
    9. E. Wayne Nafziger, 2008. "Entrepreneurship and Development," Chapters, in: Amitava Krishna Dutt & Jaime Ros (ed.), International Handbook of Development Economics, Volumes 1 & 2, volume 0, chapter 26, Edward Elgar Publishing.
    10. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
    11. Kristina Nyström, 2008. "The institutions of economic freedom and entrepreneurship: evidence from panel data," Public Choice, Springer, vol. 136(3), pages 269-282, September.
    12. Wennekers, Sander & van Stel, André & Carree, Martin & Thurik, Roy, 2010. "The Relationship between Entrepreneurship and Economic Development: Is It U-Shaped?," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 6(3), pages 167-237, July.
    13. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-467, June.
    14. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    15. Herbert J Schuetze, 2008. "Tax Incentives and Entrepreneurship: Measurement and Data Considerations," International Studies in Entrepreneurship, in: Emilio Congregado (ed.), Measuring Entrepreneurship, chapter 0, pages 205-225, Springer.
    16. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    17. Kejriwal, Mohitosh & Perron, Pierre, 2008. "The limit distribution of the estimates in cointegrated regression models with multiple structural changes," Journal of Econometrics, Elsevier, vol. 146(1), pages 59-73, September.
    18. Kejriwal Mohitosh, 2008. "Cointegration with Structural Breaks: An Application to the Feldstein-Horioka Puzzle," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(1), pages 1-39, March.
    19. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    20. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    21. André Stel & David Storey & A. Thurik, 2007. "The Effect of Business Regulations on Nascent and Young Business Entrepreneurship," Small Business Economics, Springer, vol. 28(2), pages 171-186, March.
    22. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
    23. Yamada, Gustavo, 1996. "Urban Informal Employment and Self-Employment in Developing Countries: Theory and Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 44(2), pages 289-314, January.
    24. José Ernesto Amorós & Óscar Cristi, 2007. "Longitudinal Analysis of Entrepreneurship and Competitiveness Dynamics in Latin America," Working Papers 200706, Departament Empresa, Universitat Autònoma de Barcelona.
    25. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    26. Borjas, George J & Bronars, Stephen G, 1989. "Consumer Discrimination and Self-employment," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 581-605, June.
    27. Schuetze, Herb J., 2000. "Taxes, economic conditions and recent trends in male self-employment: a Canada-US comparison," Labour Economics, Elsevier, vol. 7(5), pages 507-544, September.
    28. Kanniainen, Vesa & Vesala, Timo, 2005. "Entrepreneurship and labor market institutions," Economic Modelling, Elsevier, vol. 22(5), pages 828-847, September.
    29. Matteo Aquilina & Rainer Klump & Carlo Pietrobelli, 2006. "Factor Substitution, Average Firm Size and Economic Growth," Small Business Economics, Springer, vol. 26(3), pages 203-214, April.
    30. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    31. José Ernesto Amorós & Oscar Cristi, 2007. "Longitudinal Analisys of Entrepreneurship and Competitiveness Dynamics in Latin America," Working Papers 0706, Departament Empresa, Universitat Autònoma de Barcelona, revised Jun 2007.
    32. Jushan Bai & Pierre Perron, 2003. "Critical values for multiple structural change tests," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 72-78, June.
    33. Zoltan Acs & Sameeksha Desai & Jolanda Hessels, 2008. "Entrepreneurship, economic development and institutions," Small Business Economics, Springer, vol. 31(3), pages 219-234, October.
    34. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1169-1213.
    35. Torrini, Roberto, 2005. "Cross-country differences in self-employment rates: the role of institutions," Labour Economics, Elsevier, vol. 12(5), pages 661-683, October.
    36. Yoichi Arai & Eiji Kurozumi, 2007. "Testing for the Null Hypothesis of Cointegration with a Structural Break," Econometric Reviews, Taylor & Francis Journals, vol. 26(6), pages 705-739.
    37. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-433, March.
    38. Martin Carree & André Van Stel & Roy Thurik & Sander Wennekers, 2007. "The relationship between economic development and business ownership revisited," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 19(3), pages 281-291, May.
    39. Parker,Simon C., 2006. "The Economics of Self-Employment and Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521030632, September.
    40. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
    41. Martin T. Robson & Colin Wren, 1999. "Marginal and Average Tax Rates and the Incentive for Self-Employment," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 757-773, April.
    42. Chandler, Alfred D., 1990. "Scale and Scope: A Review Colloquium - Scale and Scope: The Dynamics of Industrial Capitalism. By Alfred D. ChandlerJr., with Takashi Hikino · Cambridge, Mass.: Harvard University Press, 1990. xix + 8," Business History Review, Cambridge University Press, vol. 64(4), pages 690-735, January.
    43. Shin, Yongcheol, 1994. "A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration," Econometric Theory, Cambridge University Press, vol. 10(1), pages 91-115, March.
    44. Simon C. Parker, 2003. "Does Tax Evasion Affect Occupational Choice?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(3), pages 379-394, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emilio Congregado & Antonio A. Golpe & Vicente Esteve, 2019. "On the Substitutability between Paid-employment and Self-employment: Evidence from the Period 1969–2014 in the United States," Sustainability, MDPI, vol. 11(2), pages 1-17, January.
    2. Emilio Congregado & Antonio Golpe & André Stel, 2014. "The role of scale economies in determining firm size in modern economies," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(2), pages 431-455, March.
    3. Vicente Esteve & Manuel Navarro-Ibáñez & María A. Prats, 2013. "The present value model of U.S. stock prices revisited: long-run evidence with structural breaks, 1871-2010," Working Papers 1305, Department of Applied Economics II, Universidad de Valencia.
    4. Esteve, Vicente & Navarro-Ibáñez, Manuel & Prats, María A., 2013. "The Spanish term structure of interest rates revisited: Cointegration with multiple structural breaks, 1974–2010," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 24-34.
    5. Vicente Esteve & Manuel Navarro-Ibáñez & María A. Prats, 2013. "The present value model of US stock prices revisited: long-run evidence with structural breaks, 1871-2010," Working Papers 04/13, Instituto Universitario de Análisis Económico y Social.
    6. Luis Medrano-Adán & Vicente Salas-Fumás & J. Sanchez-Asin, 2015. "Heterogeneous entrepreneurs from occupational choices in economies with minimum wages," Small Business Economics, Springer, vol. 44(3), pages 597-619, March.
    7. Concepción Román & Emilio Congregado & José Millán, 2011. "Dependent self-employment as a way to evade employment protection legislation," Small Business Economics, Springer, vol. 37(3), pages 363-392, October.
    8. Emilio Congregado & Vicente Esteve & Antonio A. Golpe, 2012. "Job Creation and the Self-employed Firm Size: evidence from Spain," Working Papers 1202, Department of Applied Economics II, Universidad de Valencia.
    9. Thai, Mai Thi Thanh & Turkina, Ekaterina, 2014. "Macro-level determinants of formal entrepreneurship versus informal entrepreneurship," Journal of Business Venturing, Elsevier, vol. 29(4), pages 490-510.
    10. Peter van der Zwan & Ingrid Verheul & Roy Thurik & Isabel Grilo, 2009. "Entrepreneurial Progress: Climbing the Entrepreneurial Ladder in Europe and the US," Tinbergen Institute Discussion Papers 09-070/3, Tinbergen Institute, revised 17 Mar 2010.
    11. Vicente Esteve, 2004. "Política fiscal y productividad del trabajo en la economía española: un análisis de series temporales," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 19(1), pages 3-29, June.
    12. Congregado, Emilio & Esteve, Vicente, 2022. "Cointegration with structural changes and classical model of inflation in Spain, 1830–1998," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 376-388.
    13. Rafael Emilio Congregado & Vicente Esteve, 2021. "Long-run neutrality of money and inflation in Spanish economy, 1830-1998," Working Papers 2104, Department of Applied Economics II, Universidad de Valencia.
    14. Sander Wennekers & Roy Thurik & André Stel & Niels Noorderhaven, 2010. "Uncertainty Avoidance and the Rate of Business Ownership Across 21 OECD Countries, 1976–2004," Springer Books, in: Andreas Freytag & Roy Thurik (ed.), Entrepreneurship and Culture, chapter 0, pages 271-299, Springer.
    15. Larin, Alexander & Tarunina, Elena, 2015. "Entrepreneurial activity and economic development: The shape of the relationship," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 37(1), pages 3-26.
    16. Emilio Congregado & Carmen Díaz-Roldán & Vicente Esteve, 2023. "Deficit sustainability and fiscal theory of price level: the case of Italy, 1861–2020," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(3), pages 755-782, August.
    17. José María Millán & Emilio Congregado & Concepción Román, 2010. "Determinants of Self-Employment Dynamics and their Implications on Entrepreneurial Policy Effectiveness," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 72, pages 45-76.
    18. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(6), pages 1453-1495, December.
    19. Maksim Belitski & Farzana Chowdhury & Sameeksha Desai, 2016. "Taxes, corruption, and entry," Small Business Economics, Springer, vol. 47(1), pages 201-216, June.
    20. Erik Monsen & Prashanth Mahagaonkar & Christian Dienes, 2012. "Entrepreneurship in India: the question of occupational transition," Small Business Economics, Springer, vol. 39(2), pages 359-382, September.

    More about this item

    Keywords

    Elasticity of substitution; Cointegration; Self-employment; Structural Breaks;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    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:eec:wpaper:1319. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Vicente Esteve (email available below). General contact details of provider: https://edirc.repec.org/data/dsvales.html .

    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.