Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy
Self-employment grants vs. subsidized employment: Is there a difference in the re-unemployment risk?
() and Lena Gustafson
Abstract: Self-employment grants and employment subsidies are active
labor market programs that aim at helping unemployed workers to escape
unemployment by becoming self-employed or being hired at an initially
reduced cost for the employer.
In Sweden in the 1990's the
participation rate in the self-employment program increased from virtually
none to almost same as in the employment subsidy program. The advancement
of the self-employment program is likely to be a result of (i) a change in
the labor market program policy, and (ii) an increase in the supply of
skilled unemployed workers. The justification for the policy change is
unclear, however. The literature indicate that a rather specific group of
unemployed workers may benefit from self-employment programs; Neither are
there any strong reasons to believe in general that self-employment should
be preferable to conventional employment through subsidies.
ex post, the justification for the policy change by comparing the
post-program duration of employment for the two programs. In addition, we
focus in some detail on the outcome for female workers and workers of
foreign citizenship. The reason for this is the explicit policy to direct
those workers to self-employment.
The data we study are the inflow to
the two programs from June 1995 to December 1996. The program participants
are followed to March 1999. The data contain detailed spell and background
information on 9,043 unemployed workers who participated in the
self-employment program and 14,142 who participated in the employment
The second explanation, see (ii), for the increase in
self-employment program implies a potentially serious selection problem. We
discuss how the selection process may bias the effect estimate in the
non-linear duration model that we use. Simulations help us to determine the
magnitude of the selection bias in our application. Moreover, we exploit
the existing behavioral heterogeneity across labor market offices to reduce
the selection bias.
We find that the risk of re-unemployment is more
than twice as high for the subsidized employment program compared with the
self-employment program. The large positive effect is, however, limited to
male and female workers of Swedish origin. We thus conclude that the policy
change in general has been successful, though we note that directing
immigrant workers to self-employment is unlikely to improve the situation
for this group of unfortunate workers on the Swedish labor market.
Keywords: Empirical Bayes methods; Employment duration; Program evaluation; Proxy variables; Selection bias; Simulations; (follow links to similar papers)
JEL-Codes: C14; C24; J64; J68; J69; (follow links to similar papers)
31 pages, October 7, 1999
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
Questions (including download problems) about the papers in this series should be directed to Monica Fällgren ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design by Joachim Ekebom