IDEAS home Printed from https://ideas.repec.org/p/ifs/ifsewp/24-01.html
   My bibliography  Save this paper

Self-employment and labor market risks

Author

Listed:
  • Richard Audoly

    (Institute for Fiscal Studies)

Abstract

I study the labor market risks associated with being self-employed. I document that the self-employed are subject to larger earnings fluctuations than employees and that they frequently transition into unemployment. Given that the self-employed are not eligible to unemployment insurance, I analyze the provision of benefits targeted at these risks using a calibrated search model with (i) precautionary savings, (ii) work opportunities in paid and self-employment, and (iii) skill heterogeneity. This exercise suggests that extending the current U.S. unemployment insurance scheme to the self-employed comes with a clear increase in the transition rate from self-employment to unemployment and an unequal benefits-to-contributions ratio across skill groups. At the calibrated parameters, the self-employed in the middle of the skill distribution lose welfare.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Richard Audoly, 2024. "Self-employment and labor market risks," IFS Working Papers W24/01, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:24/01
    as

    Download full text from publisher

    File URL: https://ifs.org.uk/sites/default/files/2024-01/WP202401-Self-employment-and-labor-market-rates.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
    2. Costas Meghir & Renata Narita & Jean-Marc Robin, 2015. "Wages and Informality in Developing Countries," American Economic Review, American Economic Association, vol. 105(4), pages 1509-1546, April.
    3. Camarero Garcia, Sebastian & Murmann, Martin, 2020. "Unemployment benefit duration and startup success," ZEW Discussion Papers 20-033, ZEW - Leibniz Centre for European Economic Research.
    4. Johannes F. Schmieder & Till von Wachter, 2016. "The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 547-581, October.
    5. Ross Levine & Yona Rubinstein, 2017. "Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 963-1018.
    6. Jake Bradley & Fabien Postel-Vinay & Hélène Turon, 2017. "Public Sector Wage Policy and Labor Market Equilibrium: A Structural Model," Journal of the European Economic Association, European Economic Association, vol. 15(6), pages 1214-1257.
    7. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    8. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, January.
    9. Jonas Kolsrud & Camille Landais & Peter Nilsson & Johannes Spinnewijn, 2018. "The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden," American Economic Review, American Economic Association, vol. 108(4-5), pages 985-1033, April.
    10. repec:hal:spmain:info:hdl:2441/4ra95789n9nrr59b6lmini6tp is not listed on IDEAS
    11. Stéphane Bonhomme & Thibaut Lamadon & Elena Manresa, 2019. "A Distributional Framework for Matched Employer Employee Data," Econometrica, Econometric Society, vol. 87(3), pages 699-739, May.
    12. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-142, February.
    13. Johan Hombert & Antoinette Schoar & David Sraer & David Thesmar, 2020. "Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France," Journal of Finance, American Finance Association, vol. 75(3), pages 1247-1285, June.
    14. John Bailey Jones & Sangeeta Pratap, 2020. "An Estimated Structural Model of Entrepreneurial Behavior," American Economic Review, American Economic Association, vol. 110(9), pages 2859-2898, September.
    15. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
    16. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    17. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    18. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
    19. Katherine Lim, 2019. "Do American mothers use self-employment as a flexible work alternative?," Review of Economics of the Household, Springer, vol. 17(3), pages 805-842, September.
    20. Catherine, Sylvain, 2022. "Keeping options open: What motivates entrepreneurs?," Journal of Financial Economics, Elsevier, vol. 144(1), pages 1-21.
    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. Camarero Garcia, Sebastian & Hansch, Michelle, 2020. "The effect of unemployment insurance benefits on (self-)employment: Two sides of the same coin?," ZEW Discussion Papers 20-062, ZEW - Leibniz Centre for European Economic Research.
    2. Liepmann, Hannah & Pignatti, Clemente, 2024. "Welfare effects of unemployment benefits when informality is high," Journal of Public Economics, Elsevier, vol. 229(C).
    3. Camarero Garcia, Sebastian & Murmann, Martin, 2020. "Unemployment benefit duration and startup success," ZEW Discussion Papers 20-033, ZEW - Leibniz Centre for European Economic Research.
    4. Etheridge, Ben, 2015. "A test of the household income process using consumption and wealth data," European Economic Review, Elsevier, vol. 78(C), pages 129-157.
    5. Catherine, Sylvain, 2022. "Keeping options open: What motivates entrepreneurs?," Journal of Financial Economics, Elsevier, vol. 144(1), pages 1-21.
    6. Herreño, Juan & Ocampo, Sergio, 2023. "The macroeconomic consequences of subsistence self-employment," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 91-106.
    7. Anna D'Ambrosio & Vincenzo Scrutinio, 2022. "A few Euro more: benefit generosity and the optimal path of unemployment benefits," CEP Discussion Papers dp1835, Centre for Economic Performance, LSE.
    8. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    9. Irina Bilan & Constantin-Marius Apostoaie, 2023. "Unemployment benefits, entrepreneurship policies, and new business creation," Small Business Economics, Springer, vol. 61(4), pages 1411-1436, December.
    10. Juan Herreno & Sergio Ocampo, 2020. "Self-Employment and Development," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20209, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    11. Manuel Sanchez & Felix Wellschmied, 2020. "Modeling Life-Cycle Earnings Risk with Positive and Negative Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 103-126, July.
    12. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    13. Fernández-Blanco, Javier, 2022. "Unemployment risks and intra-household insurance," Journal of Economic Theory, Elsevier, vol. 203(C).
    14. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
    15. Tao Wang, 2023. "Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models," Staff Working Papers 23-59, Bank of Canada.
    16. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Working Papers 16-25, Center for Economic Studies, U.S. Census Bureau.
    17. Victoria Gregory, 2020. "Firms as Learning Environments: Implications for Earnings Dynamics and Job Search," Working Papers 2020-036, Federal Reserve Bank of St. Louis, revised Sep 2023.
    18. Tom Krebs & Martin Scheffel, 2013. "Macroeconomic Evaluation of Labor Market Reform in Germany," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 664-701, December.
    19. Fatih Karahan & Serdar Ozkan, 2013. "On the Persistence of Income Shocks over the Life Cycle: Evidence, Theory, and Implications," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 452-476, July.
    20. Hryshko, Dmytro, 2014. "Correlated income shocks and excess smoothness of consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 41-62.

    More about this item

    JEL classification:

    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    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:ifs:ifsewp:24/01. 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: Emma Hyman (email available below). General contact details of provider: https://edirc.repec.org/data/ifsssuk.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.