The Effect of Unemployment Insurance on Self-Employment
Gerzina, Julie Catherine
Bednarzik, Robert W
This paper analyzes the relationship between the generosity of unemployment insurance (UI) benefits, which includes the portion of previous wages covered by unemployment insurance (Replacement Rate) as well as the duration of those benefits, available to an individual and the individual’s likelihood of being self-employed. Current literature on the topic of self-employment supports the idea that self-employment, which is, on average, less-secure and lower-paying than wage and salary work, is less desirable than wage and salary work to most Americans. Using a logistic (logit) regression and individual-level data from the U.S. Census Bureau’s Current Population Survey March 2019 Annual Social and Economic Supplements (ASEC), this paper tests the hypothesis that generosity of unemployment insurance is inversely correlated with likelihood of self-employment. This hypothesis is guided by the intuition that if unemployment benefits are sufficiently generous, displaced workers will take advantage of the safety net and spend more time searching for wage and salary work. On the other hand, if unemployment benefits are not sufficient to allow displaced workers time to find desirable employment, many will go to work for themselves out of necessity. For the wider economy, self-employment means increased entrepreneurial activity and could lead to job growth, as new small businesses grow and eventually hire more employees. Policymakers may therefore wish to enact policies that encourage self-employment. The findings of this study show evidence for an inverse relationship between Replacement Rate and self-employment for individuals in states with Replacement Rates in the lower half of the range, but evidence for a direct relationship for those in states with Replacement Rates in the higher half of the range. This could be interpreted to mean that some individuals receiving very low benefits are pushed into self-employment because they are unable to survive on UI long enough to find more desirable wage or salary work, but those receiving generous benefits and who would prefer self-employment are able to take advantage of the safety net provided by UI to invest time and resources into starting their own businesses.
Showing items related by title, author, creator and subject.
Lundgren, Julie (Georgetown University, 2013)In recent years, student loan cohort default rates have come under heightened scrutiny regarding the effectiveness of federal financial aid. In order to better inform policy makers of student loan measures, my study ...