Employment Transitions among the self-employed during the Great Recession
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Entrepreneurs base their decision to start a business on a range of factors, from age,
education and assets to macroeconomic conditions. While the majority of these factors have a
well-understood impact on entering and exiting self-employment, the effect of macroeconomic
conditions is less clear. During periods of recession, self-employment may increase due to its
attractiveness as an alternative to unemployment. However, the difficulty of maintaining a
business through the downturn can lead to a decrease in the self-employed. Understanding the
transitions in and out of self-employment would help us better appreciate how entrepreneurs
experience recessions. We use a robust set of longitudinal data from the Survey of Income and
Program Participation (SIPP) to analyze the movements between self-employment,
unemployment and wage-work during the Great Recession. The results suggest that the
probability of entering self-employment depends on characteristics of the individual while
movements out of self-employment are contingent on characteristics of the business.
Furthermore, transitions from unemployment to self-employment increased during the recession
months and transitions from self-employment to wage-work increased in the post recession
months.