Employment protection and regional self-employment rates in an economic downturn: a multilevel analysis

This research aims to investigate the role of employment protection in affecting the relationship between regional self-employment and unemployment during turbulent times. In doing so, data comprised of 230 regions, nested in 17 EU countries, for the 2008-2015 period were used. When accounting for individual effects, we find that an increase in regional unemployment would decrease regional self-employment, while the opposite was found true for employment protection. When accounting for the cross-level interaction between regional unemployment and national employment protection legislation, however, we find that the underlying increased labor market rigidity not only decreases regional self-employment, but it also magnifies the adverse effect of regional unemployment. Our key results thus indicate that high labor market rigidity hinders self-employment.