How sensitive is the business ownership rate to unemployment fluctuations? Evidence of asymmetries in a panel of 23 OECD countries

Abstract

In this article, we try to test whether the relationship running from unemployment to entrepreneurship/self-employment – the so-called ‘recession-push’ hypothesis – is affected asymmetrically by dynamic labour market conditions. To this end, we employ a panel threshold regression model into which nonlinearities are introduced by allowing an exogenous variable – unemployment – to have a different impact on the endogenous variable – business ownership – in different regimes. Our estimates provide support for the existence of different responses of cyclical self-employment to cyclical unemployment, depending on the value of the deviation between the observed and natural rates of unemployment with a one-period lag – i.e., depending on the intensity of the unemployment problem – that is the threshold variable. JEL classification: L26; J21; J23; J24; E32; C23.