The necessity of self-employment towards retirement: Evidence from labor market dynamics and search requirements for unemployment benefits

This paper investigates whether individuals at the end of working life choose self-employment
out of necessity and to what degree job search requirements for unemployment benefits induce
people to become self-employed. For this purpose we analyze labor market transitions for people
between the ages of 50 and 63 using a dynamic multinomial logit model with unobserved
heterogeneity.
The results indicate that at the end of the career individuals with a weak labor market position
have a relatively high probability to become self-employed, e.g. to end or avoid a period
of unemployment or inactivity (necessity driven self-employment). Contrasting some earlier
work, the results do not suggest that self-employment is used as a gradual retirement route for
employees. A difference-in-differences analysis shows that job search requirements among unemployed older workers increased the outflow from unemployment and decreased the inflow
into unemployment, but did not increase self-employment out of necessity or opportunity.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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