16 september 2003
In this research report we unify two approaches with respect to the modelling of the rates of entrepreneurship. The first approach is the 'equilibrium approach' seeking to estimate long-run and short-run developments of the number of self-employed. The second approach is the entry/exit approach seeking to determine the determinants of gross entry and exit rates and their interdependencies. The proposed manner of modelling the entries and exits of entrepreneurs has several advantages. First, it allows for parameter constraints necessary when the amount of data periods available is small. Second, it indicates which determinants should be incorporated into the models in levels or first differences (or both). Third, the consistency imposed on the entry and exit equations allows for more adequate simulation exercises concerning future developments of the self-employment rate. The empirical application to Dutch data indicates how the method works and what sorts of results may be expected.
The determinants and future development of self-employment is of interest to policy makers. Self-employment has been claimed to partly resolve unemployment, to stimulate innovative activities and to be a highly valued occupational choice in modern economies. A range of different variables affects the rate to which people choose to become or remain self-employed. The separate effects of these variables are not easy to determine. The current paper provides a framework that may be helpful in this respect. Future research should concentrate on applying the unifying approach on larger datasets, especially for the entry/exit equations.
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11 september 2003
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