A study of relationship between self-employment and unemployment and its model

This article investigates the question whether the growth rate in the number of businesses is actually affected by the growth rate in unemployment. On the one hand, unemployment rates may stimulate start-up activity of self-employed. On the other hand, higher rates of self-employment may indicate increased entrepreneurial activity reducing un-employment in subsequent periods. These two effects have resulted in considerable ambiguities about the interrelationship between unemployment and entrepreneurial activity. This problem will be analyzed by means of an econometric model. This paper introduces a two-equation vector autoregression model capable of showing that economic growth and unemployment are significant factors to describe the entry dynamics. The model also can test the two distinct relationships between unemployment and self-employment, i.e. "refugee" and "entrepreneurial" effects. We also find that the "entrepreneurial" effects are considerably stronger than the "refugee" effects.