Academic journal article New England Journal of Entrepreneurship

Entrepreneurship and Self-Employment: The State-of-the-Art and Directions for Future Research

Academic journal article New England Journal of Entrepreneurship

Entrepreneurship and Self-Employment: The State-of-the-Art and Directions for Future Research

Article excerpt

This survey overviews the literature on entrepreneurship and self-employment. The author catalogs the main contributions of this body of research and makes a distinction between issues on which there is now widespread agreement and those for which no consensus has yet emerged. This latter set of issues provides fertile ground for further research.


Entrepreneurial activity is now recognized as a powerful engine of economic growth and innovation. Self-employment is an important source of new jobs and an alternative to paid employment. In fact, about 10 percent (OECD) of the total U.S. labor force is self-employed (and operate small businesses in general) to quickly and efficiently adjust to structural changes in the economy.

For these reasons, the study of entrepreneurship and self-employment has increased in recent years. This literature review presents a brief outline of the major topics covered in theoretical and empirical studies on entrepreneurship and self-employment. It is expected to help identify the direction of further research and the interpretation of numerous results.

Defining the words entrepreneur and entrepreneurship is one of the most difficult and intractable tasks faced by researchers in the field. There is a proliferation of theories, definitions, and taxonomies of entrepreneurship that are often in conflict and overlap with each other, resulting in confusion and disagreement among researchers and practitioners about precisely what entrepreneurship is. To cut through a paralyzing and ultimately fruitless debate, and to achieve consistency, we will adopt the following convention in this research. At the conceptual level, the terms entrepreneur and entrepreneurship will be used; at the practical level, where issues of measurement, estimation, and policy are involved, we will use the closest approximation to the manifestation of entrepreneurship that appears to be suitable. That will usually be self-employment, though occasionally the term small firms will be more relevant. These two terms will be used interchangeably in this article.

This review begins with a discussion of the static analyses of the propensity to be self-employed, using cross-sectional data. This discussion is followed by dynamic analyses, which are subdivided into transition analysis, duration analysis, and time series analysis. Open questions and further research topics are suggested in the last section.

Static Analysis of Self-Employment Choice

Static analysis based on cross-sectional data usually examines the socioeconomic characteristics of self-employment using a discrete choice model. Most of the research in this category has investigated the following questions:

* What are the determinants of entrepreneurial choice?

* What makes a young entrepreneur?

* Who starts new firms?

* What critical factors enable people to become self-employed?

* Are there any backgrounds and characteristics that distinguish successful entrepreneurs from both unsuccessful entrepreneurs and the larger group of nonentrepreneurs?

As a result, much of the work dealing with the self-employment decision has focused on personality, family circumstances, human capital (education, job experience, etc.), ethnic origin (immigrant issues), and financial capital (liquidity constraint issues).

The empirical studies vary greatly in the type of data they use. For example, Lunn and Steen (2005), Bruce and Schuetze (2004), Arum (2004), Edwards and Field-Hendrey (2002), Hout and Rosen (1999), Borjas (1986), Brock and Evans (1986), Borjas and Bronars (1989) and Evans and Leighton (1989) use samples from the U.S. labor market [Evans and Leighton (1989) also analyze the dynamic model in the same paper].

Henley (2005), Blanchflower and Oswald (1998) and Rees and Shah (1986) use samples from the U.K. labor market. Bernhardt (1994), Carrasco (1999) and Carroll and Mosakowski (1987) use samples from the Canadian, Spanish, and West German labor markets, respectively. …

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