Discussion Paper Details

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Title: Selection into entrepreneurship and self-employment

Author(s): Ross Levine and Yona Rubinstein

Publication Date: August 2020

Keyword(s): business cycles, Corporate Finance, entrepreneurship, Human Capital and Occupational choice

Programme Area(s): Development Economics, Financial Economics, Labour Economics and Monetary Economics and Fluctuations

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 cognitive and non-cognitive human capital skills, 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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Bibliographic Reference

Levine, R and Rubinstein, Y. 2020. 'Selection into entrepreneurship and self-employment'. London, Centre for Economic Policy Research.