From unemployment to self -employment: A viable alternative or a temporary solution?

The purpose of this dissertation is to explore self-employment as an alternative employment option for the unemployed individuals in the absence of the government support. It is hypothesized that the determinants of self-employment and factors affecting business dissolution are different for the unemployed entering self-employment from those who start businesses out of paid work or nonparticipants. The dissertation empirically investigates this hypothesis within the context of a Semi-Markov model of labor market histories. It's also hypothesized that for some unemployed, self-employment is a better option than remaining unemployed until a suitable wage offer comes along. To explore this issue, the dissertation sets to compare the future wage earnings of the unemployed who enter self-employment and then transition into wage sector to those who stay unemployed until finding a wage job. The empirical results show that there are sonic similarities as well as some important differences in individual level characteristics between the unemployed entering self-employment and those entering self-employment from wage-employment and non-participation. The findings also show that the wage-employed and nonparticipants are more likely to be pulled into self-employment when general macroeconomic conditions are more favorable. At the same time, the unemployed are more likely to be pushed into self-employment when the economy is weak. It is also observed that the unemployed entering self-employment are more likely to become unemployed again, but are less likely to leave the labor force after exiting self-employment when compared to those forming businesses out of wage-employment and nonparticipation. When I compare the future wage earnings of the unemployed who start businesses and then transition into wage employment to those who continue job search until finding a wage job, the results show that the unemployed individuals entering self-employment are not likely to experience lower wage earnings. Then the total income of the unemployed entering self-employment is likely to be higher over the entire period because individuals were working as self-employed part of the time that others remained unemployed.