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Licensed Unlicensed Requires Authentication Published by De Gruyter July 21, 2018

Self–Employment, Wealth and Start–up Costs: Evidence from a Financial Crisis

Koffi Elitcha and Raquel Fonseca

Abstract

Using individual-level data from three uniquely comparable surveys (Survey of Health, Ageing and Retirement in Europe, English Longitudinal Study of Ageing and Health and Retirement Study) in Europe and the United States, as well as the World Bank’s Doing Business data, this paper empirically zeroes in on the impact of start-up costs on the self-employment–wealth relationship. The longitudinal nature of the data enables us to investigate the potential effects of the last global financial crisis. Results confirm the strong positive relationship between the entrepreneurial choice and wealth as well as the negative effect that stems from the increase in start-up costs. Interestingly, although there is no strong evidence that wealth in itself played a bigger role during the crisis, we find that the negative impact of start-up costs on the entrepreneurship–wealth relationship proved to be significantly pronounced during the last crisis.

JEL Classification: E02; E21; J21; J24

Appendix

A Additional Country Figures

Figure 3: Self-employment rates and days to register a new business: our sample.

Figure 3:

Self-employment rates and days to register a new business: our sample.

Figure 4: Self-employment rates and measure of services costs: our sample.

Figure 4:

Self-employment rates and measure of services costs: our sample.

Figure 5: Self-employment rates and minimum deposit capital: our sample.

Figure 5:

Self-employment rates and minimum deposit capital: our sample.

Table 8:

Measures of start-up cost components and index.

CountryYearDays for registrationCost (% of income per cap.)Deposit capital (% of income per cap.)Start-up Cost index
USA200460.701.0454
USA200660.801.0391
USA201051.401.0205
USA201251.401.0205
Austria200425664.10.5962
Austria2006255.659.60.5049
Austria2010255.253.10.3843
Austria2012254.949.10.3067
Germany2004455.948.80.7513
Germany2006225.146.20.2189
Germany201014.54.841.90.0079
Germany201214.54.9390.0441
Sweden2004160.736.90.3109
Sweden2006160.733.70.3578
Sweden2010160.614.70.6430
Sweden2012160.513.20.6713
Netherlands2004913.266.20.7723
Netherlands200687.262.30.3174
Netherlands201085.752.40.0775
Netherlands201255.149.40.0622
Spain20041371716.92.7585
Spain20066016.214.61.1883
Spain20105215.113.50.9485
Spain2012294.713.20.1556
Italy20041321.411.20.5593
Italy2006132010.40.4593
Italy2010618.510.10.2252
Italy2012616.59.70.0933
France200471.101.0009
France200671.101.0009
France20106.50.901.0231
France20126.50.901.0231
Denmark20047048.80.3540
Denmark20066044.60.4350
Denmark20105.50260.7176
Denmark20125.50.224.20.7314
Greece20043832.5125.73.4222
Greece20063821.71162.5988
Greece20101920.722.30.7939
Greece20121120.524.40.6577
Switzerland2004188.616.60.0720
Switzerland2006182.215.10.4976
Switzerland2010182.127.20.3263
Switzerland2012182.126.30.3395
England2004130.900.8977
England200610.50.700.9585
England201011.50.700.9392
England201211.50.700.9392

  1. Source: World Bank’s Doing Business Data and Authors’ computations using principal component analysis (PCA).

Figure 6: United states: percentage of self-employed and wage workers over wealth classes.

Figure 6:

United states: percentage of self-employed and wage workers over wealth classes.

Figure 7: England: percentage of self-employed and wage workers over wealth classes.

Figure 7:

England: percentage of self-employed and wage workers over wealth classes.

Figure 8: Italy: percentage of self-employed and wage workers over wealth classes.

Figure 8:

Italy: percentage of self-employed and wage workers over wealth classes.

Figure 9: Germany: percentage of self-employed and wage workers over wealth classes.

Figure 9:

Germany: percentage of self-employed and wage workers over wealth classes.

Figure 10: The Netherlands: percentage of self-employed and wage workers over wealth classes.

Figure 10:

The Netherlands: percentage of self-employed and wage workers over wealth classes.

Figure 11: Spain: percentage of self-employed and wage workers over wealth classes.

Figure 11:

Spain: percentage of self-employed and wage workers over wealth classes.

B Robustness

Table 9:

Pooled multinomial logit estimation with wage worker as comparison outcome – start-up costs hypothesis.

Baseline outcome: Wage worker
Self-employedNon-worker
Q2 wealth0.024***0.100***
(0.004)(0.007)
Q3 wealth0.031***0.099***
(0.004)(0.007)
Q4 wealth0.046***0.096***
(0.004)(0.007)
Q5 wealth0.087***0.091
(0.004)(0.008)
Q2 wealth × SC0.009*0.065***
(0.004)(0.009)
Q3 wealth × SC0.014***0.060***
(0.005)(0.009)
Q4 wealth × SC0.013***0.047***
(0.005)(0.009)
Q5 wealth × SC0.0010.012
(0.005)(0.010)
Credit0.042***0.074***
(0.009)(0.019)
SC0.010*0.037
(0.006)(0.012)
Household size0.002**0.009***
(0.001)(0.002)
Age0.018***0.045***
(0.002)(0.005)
Age square0.000***0.000
(0.000)(0.000)
High education0.017***0.097***
(0.003)(0.005)
SC× High education0.0060.039***
(0.004)(0.008)
Good health0.016***0.069***
(0.002)(0.004)
Poor health0.052***0.279***
(0.002)(0.005)
Female0.056***0.110***
(0.002)(0.004)
Married0.007***0.015*
(0.002)(0.005)
Tax0.0010.006***
(0.001)(0.001)
Replacement ratio0.0010.001
(0.000)(0.000)
Constant0.663***2.722***
(0.073)(0.177)
Country-fixed effectsYesYes
Period-fixed effectsYesYes
Observations130,000
Pseudo-R20.257

  1. Estimated coefficients are marginal effects at mean. Clustered standard errors at the individual level are in parenthesis. ***, ** and * denote, respectively, the significance at the 1%, 5% and 10% levels.

Table 10:

Pooled multinomial logit estimation with wage worker as comparison outcome – wealth and period interactions.

Baseline outcome: Wage worker
Self-employedNon-worker
Q2 wealth0.027***0.091***
(0.006)(0.011)
Q3 wealth0.033***0.094***
(0.006)(0.010)
Q4 wealth0.045***0.086***
(0.006)(0.010)
Q5 wealth0.086***0.076***
(0.005)(0.009)
Q2 wealth × SC0.0080.061***
(0.005)(0.009)
Q3 wealth × SC0.013**0.057***
(0.005)(0.009)
Q4 wealth × SC0.012**0.044***
(0.005)(0.010)
Q5 wealth × SC0.0000.007
(0.005)(0.010)
Q2 wealth × Year 20060.0090.004
(0.007)(0.013)
Q3 wealth × Year 20060.0050.002
(0.007)(0.012)
Q4 wealth × Year 20060.0070.015
(0.006)(0.012)
Q5 wealth × Year 20060.0080.001
(0.006)(0.011)
Q2 wealth × Year 20100.0050.010
(0.007)(0.014)
Q3 wealth × Year 20100.0050.005
(0.007)(0.013)
Q4 wealth × Year 20100.0000.013
(0.007)(0.013)
Q5 wealth × Year 20100.0040.033**
(0.006)(0.013)
Q2 wealth × Year 20120.0010.027**
(0.007)(0.015)
Q3 wealth × Year 20120.0020.015
(0.007)(0.015)
Q4 wealth × Year 20120.0110.009
(0.007)(0.015)
Q5 wealth × Year 20120.0070.036**
(0.007)(0.015)
Country-fixed effectsYesYes
Period-fixed effectsYesYes
Control variablesYesYes
Observations130,000
Pseudo-R20.257

  1. Estimated coefficients are marginal effects at mean. Clustered standard errors at the individual level are in parenthesis. ***, ** and * denote, respectively, the significance at the 1%, 5% and 10% levels. Year 2004 is the omitted (benchmark comparison) period.

Table 11:

Pooled multinomial logit estimation with wage worker as comparison outcome – testing crisis and start-up cost interaction effects.

Baseline outcome: Wage worker
Self-employedNon-worker
Q2 wealth0.027***0.091***
(0.006)(0.011)
Q3 wealth0.035***0.095***
(0.006)(0.011)
Q4 wealth0.046***0.086***
(0.006)(0.011)
Q5 wealth0.088***0.076***
(0.006)(0.011)
Q2 wealth × Year 20060.0090.001
(0.008)(0.014)
Q3 wealth × Year 20060.0120.003
(0.007)(0.012)
Q4 wealth × Year 20060.0100.014
(0.007)(0.012)
Q5 wealth × Year 20060.0100.002
(0.006)(0.011)
Q2 wealth × Year 20100.0070.022
(0.009)(0.016)
Q3 wealth × Year 20100.016*0.003
(0.008)(0.015)
Q4 wealth × Year 20100.0070.015
(0.007)(0.014)
Q5 wealth × Year 20100.0060.032**
(0.007)(0.014)
Q2 wealth × Year 20120.0560.383***
(0.049)(0.092)
Q3 wealth × Year 20120.0640.019
(0.040)(0.087)
Q4 wealth × Year 20120.0500.358***
(0.038)(0.093)
Q5 wealth × Year 20120.0150.343***
(0.037)(0.114)
Q2 wealth × SC × Year 20060.0010.015
(0.007)(0.012)
Q3 wealth × SC × Year 20060.019***0.018
(0.006)(0.011)
Q4 wealth × SC × Year 20060.0080.003
(0.006)(0.011)
Q5 wealth × SC × Year 20060.0040.003
(0.004)(0.011)
Q2 wealth × SC × Year 20100.0040.026
(0.010)(0.017)
Q3 wealth × SC × Year 20100.024***0.007
(0.009)(0.016)
Q4 wealth × SC × Year 20100.014*0.005
(0.008)(0.015)
Q5 wealth × SC × Year 20100.022***0.003
(0.006)(0.016)
Q2 wealth × SC × Year 20120.0860.558***
(0.076)(0.143)
Q3 wealth × SC × Year 20120.0950.059
(0.065)(0.140)
Q4 wealth × SC × Year 2012–0.101*0.594***
(0.060)(0.150)
Q5 wealth × SC × Year 20120.0090.593***
(0.058)(0.178)

  1. Year 2004 is the omitted (benchmark comparison) period. We still control for the non-dynamic effects of SC on wealth quintiles, and they turn out to be all insignificant for the entrepreneurs predicted outcome. They are omitted from the table for the sake of readability.

Table 12:

Pooled multinomial logit estimation with non-worker as comparison outcome – start-up cost hypothesis: using previous period’s wealth.

Baseline outcome: Non-worker
Self-employedWage worker
Q2 lag wealth0.022***0.049***
(0.004)(0.006)
Q3 lag wealth0.029***0.029***
(0.004)(0.006)
Q4 lag wealth0.041***0.009
(0.004)(0.007)
Q5 lag wealth0.076***0.044***
(0.004)(0.007)
Q2 lag wealth × SC0.010**0.041***
(0.005)(0.008)
Q3 lag wealth × SC0.018***0.035***
(0.005)(0.008)
Q4 lag wealth × SC0.020***0.012
(0.005)(0.009)
Q5 lag wealth × SC0.0060.019*
(0.005)(0.010)
Credit0.0020.003
(0.018)(0.028)
SC0.038*0.013
(0.022)(0.039)
Household size0.002**0.007***
(0.001)(0.002)
Age0.020***0.060***
(0.002)(0.005)
Age square0.000***0.000***
(0.000)(0.000)
High education0.017***0.064***
(0.003)(0.005)
SC × High education0.009**0.020***
(0.004)(0.007)
Good health0.016***0.052***
(0.002)(0.004)
Poor health0.050***0.208***
(0.003)(0.005)
Female0.051**0.047***
(0.002)(0.004)
Married0.007***0.002
(0.003)(0.005)
Tax0.003*0.005
(0.002)(0.003)
Replacement ratio0.0000.001
(0.000)(0.001)
Country-fixed effectsYesYes
Period-fixed effectsYesYes
Observations80,120
Pseudo-R20.246

  1. Estimated coefficients are marginal effects at mean. Clustered standard errors at the individual level are in parenthesis. ***, ** and * denote, respectively, the significance at the 1%, 5% and 10% levels.

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Published Online: 2018-07-21

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