Switching Costs and Occupational Transition into Self-Employment

Contemporary dynamic theories of self-employment choice focus on occupational switching costs, and the risk associated with entrepreneurial income streams. However little or no previous research has addressed the question of what factors determine the length of time that it takes aspiring entrepreneurs to switch into self-employment. The existence of switching costs suggests that choice may be subject to 'hysteresis' (akin to investment under conditions of irreversibility and uncertainty). This paper presents empirical evidence on the dynamics of entrepreneurial transition drawing on data from Waves 8 to 16 of the British Household Panel Survey. The paper estimates a discrete-time duration model of the time between initial expressions of aspiration to transition into self-employment. The model incorporates measures of local economic volatility to capture uncertainty, as well as a range of demographic and background factors which may be associated with lower switching costs. Econometric results reveal that switching costs are lower for men, older individuals and graduates, as well as for those with prior entrepreneurial experience. Increased volatility in the local housing market is also found to be associated with slower transition, suggesting that information about the housing market may form an important indicator of uncertainty for aspiring entrepreneurs.self-employment, entrepreneurship, switching costs, occupational choice

House Price Shocks, Negative Equity and Household Consumption in the UK in the 1990s

We examine the impact of housing capital gains on savings behaviour during the 1990s British housing market cycle using microdata from the British Household Panel Survey and county-level house price data. We condition the models on household real financial capital gains using Family Resources Survey data. We find a marginal propensity to consume out of housing wealth of between 0.01 and 0.03, depending on specification. Among our novel findings are asymmetric behaviour between periods of house price rises and falls, with stronger consumption response during periods of house price increases, and a disproportionate impact on saving if the household has negative housing equity.

Why Do Individuals Choose Self-Employment?

This paper undertakes an analysis of the motivating factors cited by the self-employed in the UK as reasons for choosing self-employment. Very limited previous research has addressed the question of why individuals report that they have chosen self-employment. Two questions are addressed using large scale labour force survey data for the UK. The first concerns the extent to which the self-employed are self-employed out of necessity, opportunity, lifestyle decision or occupational choice. The second concerns the extent to which there is heterogeneity amongst the self-employed on the basis of the motivations that they report for choosing self-employment. Factor analysis reveals a number of different dimensions of entrepreneurship on the basis of stated motivation, but with no evidence that being 'forced' into entrepreneurship through economic necessity is a significant factor. Motivation towards entrepreneurship is therefore highly multidimensional. Multivariate regression analysis is employed using a method to control for self-selection into self-employment. This reveals significant differences between men and women, with women concerned more with lifestyle factors and less with financial gain. Market-directed 'opportunity' entrepreneurship is more strongly associated with higher educational attainment. Those joining family businesses appear not to value prior educational attainment. Public policy to promote entrepreneurship therefore needs to be tailored carefully to different groups.self-employment, entrepreneurship, motivation, occupational choice

Gender wage differentials in Brazil : trends over a turbulent era

Since the late 1980s, macroeconomic and trade reform in Brazil appears to have been accompanied by a substantial improvement in the position of women compared with men in the labor market, despite only modest changes to labor market institutions. The authors examine movements in the gender wage gap from 1988 to 1998. Their findings indicate that, over this period, the gender wage gap fell mainly because of reduced discrimination against women. But the authors find evidence to suggest that, more recently, since the elimination of high inflation, human capital investments and other earnings-related enhancements have begun to improve women's condition.Public Health Promotion,Anthropology,Health Monitoring&Evaluation,Gender and Development,Population&Development,Anthropology,Agricultural Knowledge&Information Systems,Environmental Economics&Policies,Health Monitoring&Evaluation,Population&Development

On defining and measuring the informal sector

A range of alternative empirical definitions of informal activity have been employed in the literature. Choice of definition is often dictated by data availability. Different definitions may imply very different conceptual understandings of informality. In this paper the authors investigate the degree of congruence between three definitions of informality based on employment contract registration, social security protection, and the characteristics of the employer and employment using Brazilian household survey data for the period 1992 to 2001. The authors present evidence showing that 64 percent of the economically active population are informal according to at least one definition, but only 40 percent are informal according to all three. Steady compositional changes have been taking place among informal workers, conditional on definition. The econometric analysis reveals that the conditional impact of particular factors (demographic, educational attainment, and family circumstances) on the likelihood of informality varies considerably from one definition to another. The results suggest growing heterogeneity within the informal sector. Therefore, the authors argue that informal activity may be as much associated with entrepreneurial dynamism as with any desire to avoid costly contract registration and social protection. However, the authors confirm there is no a priori reason for entrepreneurial activity to be unprotected. Consequently definitions of informality based on occupation and employer size seem the most arbitrary in practice even if conceptually well-founded.Labor Markets,Labor Standards,Work&Working Conditions,Labor Management and Relations,Tertiary Education

Human capital and earnings inequality in Brazil, 1988-98 : quantile regression evidence

The authors undertake an empirical examination of rates of return to human capital for men in Brazil, through the period of macroeconomic stabilization and trade liberalization, using data from the 1988, 1992, and 1998 Brazilian household surveys (Pesquisa Nacional por Amostra de Domic?os, PNAD). The authors estimate simultaneous quantile equations to gain an insight on the impact of human capital on wages across the hourly earnings distribution. They conclude that there is evidence of growing inequality in rates of return to education in Brazil. But the authors find evidence that education is no longer used as a screening device in the labor market, but rather rewarded for its innate association with higher productivity. Although increases in rates of return to education have been more pronounced at the top of the earnings distribution, this has not led to increased inequality. This is because the levels of education and other labor market-rewarded endowments have increased and offset the rate of return effect.Public Health Promotion,Decentralization,Health Monitoring&Evaluation,Curriculum&Instruction,Teaching and Learning,Economic Theory&Research,Fiscal&Monetary Policy,Curriculum&Instruction,Teaching and Learning,Health Monitoring&Evaluation

What Do We Know About Investment Under Uncertainty?

Recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns. This has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects of investment behaviour. This paper presents a review of this literature. A variety of methods have been used to investigate the empirical implication of irreversibility in investment, the majority focusing on the relationship between investment flows and proxy measures of uncertainty. A general conclusion is that increased uncertainty, at both aggregate and disaggregate levels, leads to lower investment rates. This suggests that there is an irreversibility effect, under which greater uncertainty raises the value of the "option" to delay a commitment to investment. This effect appears to dominate any positive impact on investment arising from the fact that greater uncertainty, under certain circumstances, increases the marginal profitability of capital. The methods used raise a number of issues which call into question the reliability of the findings, and these are addressed in the paper. However, if such irreversibility effects are present, then their omission from traditional investment models casts doubt on the efficacy of such specifications

On defining and measuring the informal sector

A range of alternative empirical definitions of informal activity have been employed in the literature. Choice of definition is often dictated by data availability. Different definitions may imply very different conceptual understandings of informality. This paper investigates the degree of congruence between three definitions of informality based on employment contract registration, on social security protection and the characteristics of the employer and employment using Brazilian household survey data for the period 1992 to 2001. 64% of the economically active are informal according to at least one definition, but only 40% are informal according to all three. Steady compositional changes have been taking place amongst informal workers, conditional on definition. Econometric analysis reveals that the conditional impact of particular factors (demographic, educational attainment, family circumstances) on the likelihood of informality varies considerably from one definition to another. Results suggest growing heterogeneity within the informal sector. Informal activity may be as much associated with entrepreneurial dynamism as with any desire to avoid costly contract registration and social protection. However there is no a priori reason for entrepreneurial activity to be unprotected. Results in the paper confirm this. Consequently definitions of informality based on occupation and employer size seem the most arbitrary in practice even if conceptually well-founded

Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty

This paper focuses on the determinants of aggregate investment spending in the UK for the industrial and commercial company (ICC) sector. It complements recent work by Cuthbertson and Gasparro (1995), who study an augmented Tobin's q model of investment in the manufacturing sector. Important focal points of our analysis are a role for real profits (internal funds), which allow firms to combat liquidity constraints when access to capital markets is not perfect, Chirinko (1987), and the impact of irreversibility and uncertainty in determining aggregate investment spending. Earlier work on manufacturing investment by Bean (1981a) developed a dynamic, error correction specification based on the flexible accelerator model. Following Cuthbertson and Gasparro we use multivariate cointegration techniques to discover a parsimonious dynamic model, which can explain the 1980s and early 1990s investment experience of the ICC sector. Our results show that a model based on investment and output alone does not cointegrate, and a short-run dynamic model of these variables suffers from heteroscedasticity. This may be consistent with the idea that increased (uncontrolled for) uncertainty has led to increased volatility in investment. The possibility that movements in the real price of gold reflect uncertainty in financial and other traded commodity markets is explored. Investigation of this more general model indicates that real profits and the real price of gold can enhance the explanation of investment spending by the ICC sector