Skip to main content

The Ins and Outs of Self-Employment: An Estimate of Business Cycle and Trend Effects


We examine quarterly microlevel data on labor market transitions taken from the Current Population Survey from 1990 to 2014 to estimate how the business cycle affects transitions into and out of self-employment from other labor market states. We control for individual demographics and occupational influences in our analysis to better pinpoint the effect of demand growth on these transitions. We find that changes in demand conditions substantially influence the marginal rate of transition into and out of self-employment from other labor market states, after taking into account demographic and industrial differences. A contraction in demand has a large effect on self-employment because it alters the balance between self-employment entry and exit. Falling demand leads to an increase in exit from entrepreneurship, but has countervailing effects on entry. While a decrease in demand leads to a decrease in the opportunity cost of entry into entrepreneurship by increasing the rate of unemployment, the entry into entrepreneurship is higher from employment than from unemployment or from out of the labor market. Finally, we find that the effect of changes in demand on self-employment differ for incorporated and unincorporated self-employment.

JEL codes: E24, J23, L26, J63.
Keywords: Business Cycle, Self-employment, Entrepreneurship, Mobility.


Suggested citation: Schweitzer, Mark E., and Scott Shane, 2016. “The Ins and Outs of Self-Employment: An Estimate of Business Cycle and Trend Effects,” Federal Reserve Bank of Cleveland Working Paper, no. 16-21.

Upcoming EventsSEE ALL

  • 11.30.17

    2017 Financial Stability and Fintech Conference

    The Federal Reserve Bank of Cleveland, the Office of Financial Research, and the University of Maryland’s Robert H. Smith School of Business invite you to attend the 2017 Financial Stability and Fintech Conference on November 30–December 1, 2017, in Washington DC. This year’s conference will highlight research and facilitate discussions related to the impact of innovation on financial stability, policy, and regulation.

  • 05.17.18

    CALL FOR PAPERS

    Inflation: Drivers and Dynamics 2018. Researchers from academia and central banks exchange ideas on modeling inflation and inflation expectations and their relationship to the macroeconomy.

  • 06.25.18

    International Journal of Central Banking Conference

    CALL FOR PAPERS The International Journal of Central Banking (IJCB) is organizing its 2018 annual conference, "Ten Years after the Global Financial Crisis: What Have We Learned about Ensuring Financial Stability?" The conference will be hosted by De Nederlandsche Bank (DNB) in Amsterdam, The Netherlands, on June 25-26, 2018, and is being organized by Tobias Adrian, Harrison Hong, Luc Laeven, and Loretta Mester.