DP15143 Selection into entrepreneurship and self-employment
|Author(s):||Ross Levine, Yona Rubinstein|
|Publication Date:||August 2020|
|Keyword(s):||business cycles, Corporate Finance, entrepreneurship, Human Capital, Occupational choice|
|JEL(s):||E32, G32, J24, L26|
|Programme Areas:||Labour Economics, Financial Economics, Development Economics, Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15143|
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.