Does Unemployment Respond Asymmetrically to Self-Employment Shocks? Evidence from a Panel of 23 OECD Countries

The aim of this article is to evaluate the promotion of self-employment as an employment strategy at the macroeconomic level, taking into account the potential existence of asymmetric effects of such policies across nations. In particular, we examine whether the employment intensity of self-employment depends on national wealth and/or labor market conditions. To this end, we employ an extended version of the panel multi-threshold regression model of Hansen (1999), recently proposed by Candelon, Colletaz and Hurlin (2012). This econometric framework allows us to: i) control for heterogeneity, i.e., the possibility that the relationship between self-employment and unemployment is not identical across nations; ii) circumvent potential reverse causality in the relationship; iii) take into account that exogenous shocks may be non-linear, i.e., may have differing effects on unemployment, depending on the regime; and iv) analyze the dynamic effects of self-employment shocks on job growth not only in the short term but also the long term. In particular, our estimates provide support for the existence of a significant response of cyclical unemployment to shocks to self-employment but with differing intensities, depending on the level of GDP per capita, which is used as a threshold variable. Our main finding is that the employment intensity of self-employment – i.e., its capacity to reduce unemployment – is highly dependent on national labor and product market conditions