I study the role of labour market outcomes and unemployment risk on self-employment dynamics. Entry to self-employment from paid work is lower during downturns as well as in industries that are experiencing higher increases in unemployment. In line with empirical evidence highlighting the uncertainty and risk associated with business creation, I build a model where transitions to entrepreneurship are risky. Failure leads to the individual being unemployed. Risky business creation stresses the importance of hiring and the job finding rate, in contrast with previous literature emphasizing the importance of displacement and job separations. I structurally estimate my model to fit the US economy during the Great Recession and decompose the change in unemployment risk for workers into these two components: I find that the fall of the job finding rate dominates the rise of the job separation rate and drives the dynamics of entry into self-employment. Higher unemployment risk can explain the 16% decrease of the self-employment rate between 2007 and 2011, and my findings suggest that it also leads to significantly worse entrepreneurial quality.

Download the paper

Work in Progress Papers

Housing Wealth and Business Dynamism, Work in Progress

I study the impact of housing wealth shocks on business creation. The creation of new employer firms and establishments fell sharply during the Great Recession and hasn’t recovered since. I first document that new entrepreneurs are disproportionately more likely to have been recently turned down credit and that the wealth of new start-up founders is more likely to reside in housing compared to the rest of the population. To study the impact of house prices on firm and establishment entry, I propose a new instrumental-variable strategy that exploits a local area’s pre-existing exposure to credit risk using mortgages characteristics. I find that while credit conditions are related to business creation, house price changes do not affect the likelihood of firm or establishment entry.

Productivity and Misallocation in the Caucasus and Central Asia Region (with Benedicte Baduel and Gaelle Pierre), Work in Progress

Our study uses the World Bank Enterprise Survey for the Caucasus, Central Asia (CCA) and Emerging Europe. We find that firms in CCA, initially less productive than other firms in Emerging Europe have partially caught up between 2009 and 2013, before falling behind more recently. However, productivity remains more dispersed in CCA, potentially signalling the presence of greater distortions. Decomposing misallocation arising from capital inputs to misallocation from labour inputs reveals that distortions in the access to capital are more important. We investigate the determinants of higher capital misallocation in the CCA region by comparing access finance, the business regulatory environment and corruption levels with Emerging Europe. Our empirical analysis highlights the importance of greater financial inclusion in the CCA region to achieve a more efficient allocation of resources.

Placement Officer
Professor Mark Schankerman

Supervisor
Professor Alwyn Young

Reference
Professor Alwyn Young
Professor Benjamin Moll
Professor Ethan Ilzetzki

Email
b.tabti@lse.ac.uk

Room number
32L.1.25

Office Address
Department of Economics,
London School of Economics and Political Science,
Houghton Street, London WC2A 2AE