From Employee to Entrepreneur: The Role of Unemployment Risk
Ai Jun Hou, Sara Jonsson, and Qinglin Ouyang, all from the Finance section, recently had their article, “From Employee to Entrepreneur: The Role of Unemployment Risk,” accepted for publication in the Journal of Financial Economics, one of the top three journals in finance.
In this article, Ai Jun Hou, Sara Jonsson, Qinglin Ouyang, and their co-author Xiaoyang Li (Deakin University) use Swedish administrative data to study how increased unemployment risk affects employees’ decisions to enter entrepreneurship. They use the 2001 relaxation of the Last-In-First-Out dismissal rule, which shifted unemployment risk from the most junior employees to the more senior ones, as a shock to unemployment risk. The results show that employees facing increased unemployment risk are more likely to enter entrepreneurship. Additionally, they track the income dynamics of the new entrepreneurs and the performance of their ventures, finding that entrepreneurs who faced higher unemployment risk do not underperform compared to other entrepreneurs.
The study indicates that rigid employment protection policies can be an impediment to entrepreneurship, and the findings have important implications for designing policies to spur entrepreneurship.
Ai Jun Hou, Sara Jonsson and Qinglin Ouyang. Photo: Private
