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Abstract

The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-pro t purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractUsing recently developed indicators of the strictness of employment protection legislation in OECD countries, the paper examines the issue of whether strict employment protection legislation may promote self-employment by encouraging employers to contract-out work to self-employed workers. Contrary to the results of previous studies, the paper finds little evidence for a positive relationship between self-employment and the strictness of EPL. While the raw data suggest that a positive relationship may indeed exist, once suitable control variables are introduced into the analysis, it appears that if anything, the opposite may be true: i.e. stricter employment protection legislation may actually reduce self-employment.JEL Codes: J21, J23* The analysis reported in this paper grew out of work originally carried out for the OECD. I am grateful to John Evans and Paula Adam of the OECD, for their help in providing some of the data used in the analysis and to John Evans, Simon Parker and an anonymous referee for their helpful comments on previous versions of the paper. Responsibility for the analysis and interpretation of the data, and for the views expressed in the paper, is mine alone.2

The Policy Drivers of Self-Employment: New Evidence from Europe

“…By contrast, the stringency of employment protection legislation on permanent contract does not seem to play a major role in explaining the decision to move to self-employment in the short or the long term. The result is consistent with Torrini (2005) and Robson (2003). The lack of significance of results is likely to reflect to a large extent the limitation of the measure of employment protections, which is a de jure indicator and captures only imperfectly the stringency of labour-market regulations faced by firms.…”

“…The role that employment protection legislation (EPL) could play in incentivising the choice to work self-employed has also been explored in detail, although the findings have yielded mixed results. A number of studies have shown that EPL restrictiveness has little impact on aggregate self-employment (Robson, 2003;Torrini, 2005;Kannaiainen and Vesala, 2005). However, highlighting the heterogeneity of self-employed as a group, studies that focus on specific categories of self-employmentincluding a negative impact from the interaction between protections and educational attainment (Baumann and Brädle, 2012) -find a significant impact of EPL.…”

On the Substitutability between Paid-employment and Self-employment: Evidence from the Period 1969–2014 in the United States

“…Finally, one could argue that the reversal in the business ownership rate may be the result of structural changes having strong effects on occupational choice decisions and, therefore, on the elasticity of substitution between paid-employment and self-employment. In particular, we may hypothesise that the above factors, in conjunction with the emergence of incentives schemes, such as subsidies or tax allowances [33][34][35][36][37], and a progressive reduction in the rights and benefits derived from employment protection legislation may have introduced substantial changes in the risk-adjusted relative earnings of paid employment and self-employment [38][39][40][41][42][43][44][45]. Thus, one could argue that higher levels of entrepreneurship may indicate that extant job creators are not creating attractive wage-earning job opportunities as a result of a low valuation of the risk associated with self-employment.…”

To what extent do policies contribute to self-employment?

“…Self-employment offers greater opportunities for a reduction in the burden of taxation. The impact that tax policies can have on self-employment has been thoroughly analysed, although the focus has particularly been on the extent to which self-employed individuals mis-report their income to minimise their tax burden (Guyton et al (2018[4]), Åstebro and Chen (2014 [5]), Kleven et al (2011 [6]) and Bárány (2017 [7])). The role that complexities in the labour taxation system can have on self-employment has been explored in great detail in Aghion et al (2017 [8]).…”