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Selection into Entrepreneurship and Self-Employment

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  • Ross Levine
  • Yona Rubinstein

Abstract

We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated human capital, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.

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  • Ross Levine & Yona Rubinstein, 2018. "Selection into Entrepreneurship and Self-Employment," NBER Working Papers 25350, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25350
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    4. Fairlie, Robert, 2020. "The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions," MPRA Paper 113127, University Library of Munich, Germany.
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    9. Fairlie, Robert W, 2020. "The Impact of COVID-19 on Small Business Owners: Continued Losses and the Partial Rebound in May 2020," Santa Cruz Department of Economics, Working Paper Series qt21f993s2, Department of Economics, UC Santa Cruz.
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    21. Hsuan-Hua Huang & Hsing-Wen Han & Kuang-Ta Lo & Tzu-Ting Yang, 2023. "Liquidity Constraints, Cash Windfalls, and Entrepreneurship: Evidence from Administrative Data on Lottery Winners," Papers 2303.17029, arXiv.org.
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    23. Jack I. Richter & Pankaj C. Patel, 2022. "Impact of the COVID-19 pandemic on the hours lost by self-employed racial minorities: evidence from Brazil," Small Business Economics, Springer, vol. 58(2), pages 769-805, February.
    24. Jarkko Harju & Toni Juuti & Tuomas Matikka, 2023. "Stairway to Heaven? Selection into Entrepreneurship, Income Mobility and Firm Performance," Working Papers 17, Finnish Centre of Excellence in Tax Systems Research.

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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