The Necessity of Self-Employment Towards Retirement: Evidence from Labor Market Dynamics and Search Requirements for Unemployment Benefits
41 Pages Posted: 19 May 2015
Date Written: April 30, 2015
This paper investigates whether individuals at the end of working life choose self-employment out of necessity and to what degree job search requirements for unemployment benefits induce people to become self-employed. For this purpose we analyze labor market transitions for people between the ages of 50 and 63 using a dynamic multinomial logit model with unobserved heterogeneity.
The results indicate that at the end of the career individuals with a weak labor market position have a relatively high probability to become self-employed, e.g. to end or avoid a period of unemployment or inactivity (necessity driven self-employment). Contrasting some earlier work, the results do not suggest that self-employment is used as a gradual retirement route for employees. A difference-in-differences analysis shows that job search requirements among unemployed older workers increased the outflow from unemployment and decreased the inflow into unemployment, but did not increase self-employment out of necessity or opportunity.
Keywords: Labor market dynamics, retirement, self-employment, unemployment insurance, job search requirements
JEL Classification: C23, J14, J26, J64, J68
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