Essays on Self-Employment and Entrepreneurship

Abstract

This dissertation consists of three chapters studying different issues related to self-employment and entrepreneurship. The first chapter studies the effects of labor market frictions and credit constraints in an economy with self-employment. Two types of self-employed workers emerge in the model: (i) entrepreneurs and (ii) workers using self-employment as a stopgap. I show that labor market frictions generate a motive not to transition into self-employment, by making selfemployment a choice that takes time to reverse. At the aggregate level, these frictions also reduce the average size of entrepreneurs' businesses. Meanwhile, even if credit constraints are of particular importance for entrepreneurs, they also affect the stopgap self-employed. When credit

constraints are tighter, fewer vacancies are posted, which increases the number of workers using self-employment as a stopgap in equilibrium.

In the second chapter, I use data from the PSID to study the characteristics of workers using selfemployment as a stopgap while searching for another job, vis-à-vis those of other self-employed workers. The data reveals that stopgap self-employment is relatively high among young workers and those who experienced unemployment. Furthermore, the probability of entering self-employment increases monotonically with wealth for those not using self-employment as a stopgap, while it has an inverted U shape for those using self-employment as a stopgap. I also

find that being unemployed increases the probability of becoming stopgap self-employed, but has no effect on the probability of becoming self-employed for other reasons.

The third chapter examines the impact of exogenous technological growth on entrepreneurship and unemployment. The model developed in that chapter predicts that in the absence of labor

market frictions, technological growth has an effect on entrepreneurship if and only if it affects an entrepreneur's capacity to manage workers. When labor market frictions are present,

technological growth may have a positive or negative impact on entrepreneurship and unemployment. The desirable outcome of an increase in the rate of technological growth enhancing entrepreneurship and dampening unemployment is more likely to be obtained when the interest rate does not increase significantly with growth, technological change is disembodied, and growth enhances entrepreneurial ability at managing workers.