DP2084 Self-Employment and Windfall Gains in Britain: Evidence From Panel Data

Author(s): Mark P Taylor
Publication Date: February 1999
Keyword(s): Labour Supply, Panel Data, Self-Employment
JEL(s): J22, J23, J31
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2084

Liquidity constraints can affect self-employment in a number of ways. They can prohibit potential entrepreneurs from starting up in business, they can restrict the growth of existing entrepreneurial activities and, in the extreme, they can result in small business failure. This paper uses British panel data to investigate the effects of relaxing liquidity constraints on self-employment through the unanticipated receipt of windfall gains. The results suggest that the amount of payment received has a positive and concave effect on the probability of entering self-employment and on the performance of an existing self-employment enterprise, consistent with the liquidity constraint hypothesis.