Self-Employment Dynamics Across the Business Cycle: Migrants Versus Natives
54 Pages Posted: 9 Nov 2004 Last revised: 16 Apr 2023
Abstract
Economically active people are either in gainful employment, are unemployed or selfemployed.We are interested in the dynamics of the transitions between these states acrossthe business cycle. It is generally perceived that employment or self-employment areabsorbing states. However, innovations, structural changes and business cycles generatestrong adjustment processes that lead to fluctuations between employment and selfemployment,directly or through the unemployment state. Migrants are more likely to besensitive to adjustment pressures than natives, since they have less stable jobs and choosemore often self-employment to avoid periods of unemployment. These issues areinvestigated using a huge micro data set generated from 19 waves of the German SocioeconomicPanel. The findings suggest that the conditional probabilities of entry into selfemploymentare more than twice as high from the status of unemployment as from the statusof employment. Self-employment is also an important channel back to regular employment.Business cycle effects strongly impact the employment transition matrix, and migrants take alarger part in the adjustment process. They use self-employment as a mechanism tocircumvent and escape unemployment and to integrate into the host country's labor market.
Keywords: business cycle, migration, self-employment, entrepreneurship, Markov chain analysis
JEL Classification: E32, J23, J61, M13
Suggested Citation: Suggested Citation
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