Discussion Paper Details

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Title: Why Does the Self-Employment Rate Vary Across Countries and Over Time?

Author(s): ZoltŠn J Acs, David B Audretsch and David S Evans

Publication Date: January 1994

Keyword(s): Economic Development, Self-Employment and Unemployment

Programme Area(s): Applied Macroeconomics

Abstract: There is a tremendous diversity in the level and time-series pattern of the self-employment rate across countries. After documenting this fact with cross-section and time-series data on industrialized and lesser-developed countries, this paper presents and tests a series of hypotheses concerning the sources of this diversity. We show that the major explanation for this diversity is the stage of economic development. While the tendency for the self-employment rate to decline with economic development has long been recognized, this paper is the first attempt to estimate the statistical relationship between self-employment and economic development and to test an explanation for this relationship that is grounded in theory. We also show that the negative relationship between self-employment and economic development remains after controlling for a number of other factors. Although economic development is an extremely powerful force behind the secular decline in self-employment rates, the convergence of several factors in the 1970s tended to stem the secular decline in the self-employment rate for many countries. Of the 23 OECD countries we examined, 15 had increases in the self-employment rate during the 1970s or 1980s. It is likely, however, that these factors are temporary and that self-employment will continue its downwards trend as per-capita wealth increases in the developed and developing world.

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Bibliographic Reference

Acs, Z, Audretsch, D and Evans, D. 1994. 'Why Does the Self-Employment Rate Vary Across Countries and Over Time?'. London, Centre for Economic Policy Research.