VJE Seminar: Ludo Visschers (Univ. Edinburgh)
Self-employment, Paid Employment and Unemployment over the Business Cycle
Ludo Visschers (Univ. Edinburgh)
Abstract. In this paper, we study the flows between self-employment, unemployment and paid employment, and how these vary over the business cycle. We construct a two-ladder equilibrium model of a frictional labor market capturing these flows: workers search both on and off the job, and receive business ideas while in any of the three states: self-, paid employment and unemployment. We study this model in an environment with aggregate shocks, which affect both the productivity of matches in the paid-employment sector, and the profitability of ideas for the self-employed. We parametrize it to see how well it can quantitatively account for observed patterns over the business cycle. These allow us to have a notion of entry into self- employment by "opportunity" (highly profitable ideas), and "necessity" (lack of alternatives in paid employment), and how these vary over the business cycle, and to quantify "prosperity pull" of self-employment in good times, and "recession push" in bad times.
(joint with Matthias Kredler and Ana Millan)