Title: Self-employment as an alternative to unemployment
Description: "Data from the NLSY show that more than a quarter of all younger men experience some period of self-employment.  Many of them return to wage work.  This paper analyzes a simple model of job search and self-employment where self-employment provides an alternative source of income for unemployed workers.  Self-employment is distinct from wage sector employment in two important respects.  First, self- employment is a low-income, low-variation alternative to wage work.  Second, once a worker enters self-employment, he loses eligibility to receive unemployment insurance benefits, at least until he returns to wage sector employment.  The model suggests that flows into self-employment are countercyclical and flows out of self-employment are procyclical.  Data from the NLSY for males at least 21 years of age are used to investigate how demographic and economic variables influence the decision to become self-employed.  Fixed effects and random effects logit results indicate that young men are more likely to be self-employed when their wage work opportunities are more limited.  Specifically, higher local unemployment rates lead workers to self-select into self-employment, as does past unemployment experience.  The process is different for Whites and Nonwhites with education being irrelevant for White self-employed workers.  In contrast, for Nonwhites higher education reduces the probability of entering self-employment"--Federal Reserve Bank of Chicago web site.