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

Koffi Elitcha; Raquel Fonseca

doi:10.1515/bejeap-2017-0187

Published by De Gruyter July 21, 2018

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

Koffi Elitcha and Raquel Fonseca

From the journal The B.E. Journal of Economic Analysis & Policy

https://doi.org/10.1515/bejeap-2017-0187

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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.

Keywords: self-employment; occupational choice; wealth; start-up costs; financial 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 4:

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

Figure 5:

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

Table 8:

Measures of start-up cost components and index.

Country	Year	Days for registration	Cost (% of income per cap.)	Deposit capital (% of income per cap.)	Start-up Cost index
USA	2004	6	0.7	0	−1.0454
USA	2006	6	0.8	0	−1.0391
USA	2010	5	1.4	0	−1.0205
USA	2012	5	1.4	0	−1.0205
Austria	2004	25	6	64.1	0.5962
Austria	2006	25	5.6	59.6	0.5049
Austria	2010	25	5.2	53.1	0.3843
Austria	2012	25	4.9	49.1	0.3067
Germany	2004	45	5.9	48.8	0.7513
Germany	2006	22	5.1	46.2	0.2189
Germany	2010	14.5	4.8	41.9	−0.0079
Germany	2012	14.5	4.9	39	−0.0441
Sweden	2004	16	0.7	36.9	−0.3109
Sweden	2006	16	0.7	33.7	−0.3578
Sweden	2010	16	0.6	14.7	−0.6430
Sweden	2012	16	0.5	13.2	−0.6713
Netherlands	2004	9	13.2	66.2	0.7723
Netherlands	2006	8	7.2	62.3	0.3174
Netherlands	2010	8	5.7	52.4	0.0775
Netherlands	2012	5	5.1	49.4	−0.0622
Spain	2004	137	17	16.9	2.7585
Spain	2006	60	16.2	14.6	1.1883
Spain	2010	52	15.1	13.5	0.9485
Spain	2012	29	4.7	13.2	−0.1556
Italy	2004	13	21.4	11.2	0.5593
Italy	2006	13	20	10.4	0.4593
Italy	2010	6	18.5	10.1	0.2252
Italy	2012	6	16.5	9.7	0.0933
France	2004	7	1.1	0	−1.0009
France	2006	7	1.1	0	−1.0009
France	2010	6.5	0.9	0	−1.0231
France	2012	6.5	0.9	0	−1.0231
Denmark	2004	7	0	48.8	−0.3540
Denmark	2006	6	0	44.6	−0.4350
Denmark	2010	5.5	0	26	−0.7176
Denmark	2012	5.5	0.2	24.2	−0.7314
Greece	2004	38	32.5	125.7	3.4222
Greece	2006	38	21.7	116	2.5988
Greece	2010	19	20.7	22.3	0.7939
Greece	2012	11	20.5	24.4	0.6577
Switzerland	2004	18	8.6	16.6	−0.0720
Switzerland	2006	18	2.2	15.1	−0.4976
Switzerland	2010	18	2.1	27.2	−0.3263
Switzerland	2012	18	2.1	26.3	−0.3395
England	2004	13	0.9	0	−0.8977
England	2006	10.5	0.7	0	−0.9585
England	2010	11.5	0.7	0	−0.9392
England	2012	11.5	0.7	0	−0.9392

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 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 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 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-employed	Non-worker
Q2 wealth	0.024***	−0.100***
	(0.004)	(0.007)
Q3 wealth	0.031***	−0.099***
	(0.004)	(0.007)
Q4 wealth	0.046***	−0.096***
	(0.004)	(0.007)
Q5 wealth	0.087***	−0.091
	(0.004)	(0.008)
Q2 wealth × SC	−0.009*	0.065***
	(0.004)	(0.009)
Q3 wealth × SC	−0.014***	0.060***
	(0.005)	(0.009)
Q4 wealth × SC	−0.013***	0.047***
	(0.005)	(0.009)
Q5 wealth × SC	−0.001	0.012
	(0.005)	(0.010)
Credit	0.042***	−0.074***
	(0.009)	(0.019)
SC	0.010*	−0.037
	(0.006)	(0.012)
Household size	0.002**	−0.009***
	(0.001)	(0.002)
Age	−0.018***	0.045***
	(0.002)	(0.005)
Age square	0.000***	−0.000
	(0.000)	(0.000)
High education	0.017***	−0.097***
	(0.003)	(0.005)
SC× High education	0.006	−0.039***
	(0.004)	(0.008)
Good health	−0.016***	0.069***
	(0.002)	(0.004)
Poor health	−0.052***	0.279***
	(0.002)	(0.005)
Female	−0.056***	0.110***
	(0.002)	(0.004)
Married	−0.007***	0.015*
	(0.002)	(0.005)
Tax	−0.001	0.006***
	(0.001)	(0.001)
Replacement ratio	−0.001	0.001
	(0.000)	(0.000)
Constant	0.663***	−2.722***
	(0.073)	(0.177)

Country-fixed effects	Yes	Yes
Period-fixed effects	Yes	Yes
Observations	130,000
Pseudo-R2	0.257

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-employed	Non-worker
Q2 wealth	0.027***	−0.091***
	(0.006)	(0.011)
Q3 wealth	0.033***	−0.094***
	(0.006)	(0.010)
Q4 wealth	0.045***	−0.086***
	(0.006)	(0.010)
Q5 wealth	0.086***	−0.076***
	(0.005)	(0.009)
Q2 wealth × SC	−0.008	0.061***
	(0.005)	(0.009)
Q3 wealth × SC	−0.013**	0.057***
	(0.005)	(0.009)
Q4 wealth × SC	−0.012**	0.044***
	(0.005)	(0.010)
Q5 wealth × SC	0.000	0.007
	(0.005)	(0.010)
Q2 wealth × Year 2006	−0.009	−0.004
	(0.007)	(0.013)
Q3 wealth × Year 2006	−0.005	−0.002
	(0.007)	(0.012)
Q4 wealth × Year 2006	−0.007	−0.015
	(0.006)	(0.012)
Q5 wealth × Year 2006	−0.008	−0.001
	(0.006)	(0.011)
Q2 wealth × Year 2010	−0.005	−0.010
	(0.007)	(0.014)
Q3 wealth × Year 2010	−0.005	−0.005
	(0.007)	(0.013)
Q4 wealth × Year 2010	0.000	−0.013
	(0.007)	(0.013)
Q5 wealth × Year 2010	0.004	−0.033**
	(0.006)	(0.013)
Q2 wealth × Year 2012	0.001	−0.027**
	(0.007)	(0.015)
Q3 wealth × Year 2012	0.002	−0.015
	(0.007)	(0.015)
Q4 wealth × Year 2012	0.011	−0.009
	(0.007)	(0.015)
Q5 wealth × Year 2012	0.007	−0.036**
	(0.007)	(0.015)


Country-fixed effects	Yes	Yes
Period-fixed effects	Yes	Yes
Control variables	Yes	Yes
Observations	130,000
Pseudo-R2	0.257

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-employed	Non-worker
Q2 wealth	0.027***	−0.091***
	(0.006)	(0.011)
Q3 wealth	0.035***	−0.095***
	(0.006)	(0.011)
Q4 wealth	0.046***	−0.086***
	(0.006)	(0.011)
Q5 wealth	0.088***	−0.076***
	(0.006)	(0.011)
Q2 wealth × Year 2006	−0.009	0.001
	(0.008)	(0.014)
Q3 wealth × Year 2006	−0.012	0.003
	(0.007)	(0.012)
Q4 wealth × Year 2006	−0.010	−0.014
	(0.007)	(0.012)
Q5 wealth × Year 2006	−0.010	−0.002
	(0.006)	(0.011)
Q2 wealth × Year 2010	−0.007	−0.022
	(0.009)	(0.016)
Q3 wealth × Year 2010	−0.016*	−0.003
	(0.008)	(0.015)
Q4 wealth × Year 2010	−0.007	−0.015
	(0.007)	(0.014)
Q5 wealth × Year 2010	−0.006	−0.032**
	(0.007)	(0.014)
Q2 wealth × Year 2012	0.056	−0.383***
	(0.049)	(0.092)
Q3 wealth × Year 2012	0.064	0.019
	(0.040)	(0.087)
Q4 wealth × Year 2012	−0.050	0.358***
	(0.038)	(0.093)
Q5 wealth × Year 2012	0.015	0.343***
	(0.037)	(0.114)
Q2 wealth × SC × Year 2006	−0.001	0.015
	(0.007)	(0.012)
Q3 wealth × SC × Year 2006	−0.019***	0.018
	(0.006)	(0.011)
Q4 wealth × SC × Year 2006	−0.008	0.003
	(0.006)	(0.011)
Q5 wealth × SC × Year 2006	−0.004	−0.003
	(0.004)	(0.011)
Q2 wealth × SC × Year 2010	−0.004	−0.026
	(0.010)	(0.017)
Q3 wealth × SC × Year 2010	−0.024***	0.007
	(0.009)	(0.016)
Q4 wealth × SC × Year 2010	−0.014*	−0.005
	(0.008)	(0.015)
Q5 wealth × SC × Year 2010	−0.022***	0.003
	(0.006)	(0.016)
Q2 wealth × SC × Year 2012	0.086	−0.558***
	(0.076)	(0.143)
Q3 wealth × SC × Year 2012	0.095	0.059
	(0.065)	(0.140)
Q4 wealth × SC × Year 2012	–0.101*	0.594***
	(0.060)	(0.150)
Q5 wealth × SC × Year 2012	0.009	0.593***
	(0.058)	(0.178)

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-employed	Wage worker
Q2 lag wealth	0.022***	0.049***
	(0.004)	(0.006)
Q3 lag wealth	0.029***	0.029***
	(0.004)	(0.006)
Q4 lag wealth	0.041***	0.009
	(0.004)	(0.007)
Q5 lag wealth	0.076***	−0.044***
	(0.004)	(0.007)
Q2 lag wealth × SC	−0.010**	−0.041***
	(0.005)	(0.008)
Q3 lag wealth × SC	−0.018***	−0.035***
	(0.005)	(0.008)
Q4 lag wealth × SC	−0.020***	−0.012
	(0.005)	(0.009)
Q5 lag wealth × SC	−0.006	−0.019*
	(0.005)	(0.010)
Credit	−0.002	0.003
	(0.018)	(0.028)
SC	−0.038*	0.013
	(0.022)	(0.039)
Household size	0.002**	0.007***
	(0.001)	(0.002)
Age	−0.020***	−0.060***
	(0.002)	(0.005)
Age square	0.000***	0.000***
	(0.000)	(0.000)
High education	0.017***	0.064***
	(0.003)	(0.005)
SC × High education	0.009**	0.020***
	(0.004)	(0.007)
Good health	−0.016***	−0.052***
	(0.002)	(0.004)
Poor health	−0.050***	−0.208***
	(0.003)	(0.005)
Female	−0.051**	−0.047***
	(0.002)	(0.004)
Married	−0.007***	−0.002
	(0.003)	(0.005)
Tax	0.003*	−0.005
	(0.002)	(0.003)
Replacement ratio	0.000	0.001
	(0.000)	(0.001)

Country-fixed effects	Yes	Yes
Period-fixed effects	Yes	Yes
Observations	80,120
Pseudo-R2	0.246

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

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

Abstract

Appendix

A Additional Country Figures

B Robustness

References

Journal and Issue

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