Gender Differences in Self-employment Duration: the Case of Necessity and Opportunity Self-employed

Jones, Maggie R.; Jones, Maggie R.

A strand of the self-employment literature suggests that those ‘pushed’ into self-employment out of necessity may perform differently from those ‘pulled’ into self-employment to pursue a business opportunity. Understanding these differences is important for economic growth and policy-making. Self-employment that leads to the establishment of a successful employer and/or innovative firm can be a conduit for job creation and an engine of economic growth. Self-employment may also serve as a tool to cushion economic downturns for those who would otherwise be unemployed. Understanding if and how self-employed types differ in their performance outcomes is important to inform and tailor policies. Opportunity entrepreneurs may be, on average, more likely to become successful employers and/or innovative firms. On the other hand, the necessity types may be more likely to exit self-employment only to find themselves unemployed. In this scenario, those becoming self-employed out of necessity might be better served by training or education programs instead of policies that stimulate self-employment indiscriminately. Meanwhile, the opportunity types would more greatly benefit from policies aimed to facilitate self-employment and bring down barriers to entry, such as access to capital.

While findings on self-employment outcomes by self-employed type are not unanimous, there is mounting evidence that performance outcomes, such as self-employment duration or earnings, differ between these two self-employed types (Carrasco 1999, Block & Wagner 2010, Luque & Jones 2016). Another strand of the literature has examined and found important gender differences in self-employment entry rates, motivations for entry, and performance outcomes. Using a unique set of data that links the American Community Survey to administrative records data from Form 1040 and W-2 records, in this paper we bring together these two strands of the literature. We explore whether there are gender differences in self-employment duration of self-employed types. In particular, we examine the likelihood of self-employment exit towards unemployment versus the wage sector for five consecutive entry cohorts, including two cohorts who entered self-employment during the Great Recession. Severely limited labor-market opportunities may have driven many in the recession cohorts to enter self-employment, while those entering self-employment during the boom may have been pursuing opportunities under favorable market conditions. To more explicitly test the concept of “necessity” versus “opportunity” self-employment, we also examine the wage labor attachment (or weeks worked in the wage sector) in the year prior to becoming self-employed.

Preliminary findings indicate that there are no gender differences in self-employment duration for male and female entrants with the lowest and the highest wage labor attachment prior to becoming self-employed. However, we do find gender differences for those who participated in part-time to full employment in the wage sector prior to self-employment entry. Relative to self-employed men, self-employed women in this group are more likely to exit self-employment towards unemployment if they entered self-employment during the economic boom.

Association for Public Policy Analysis & Management

Panel Paper: Gender Differences in Self-employment Duration: the Case of Necessity and Opportunity Self-employed