Self-employment and the business cycle: evidence from Poland

Abstract

Two reasons for undertaking self-employment can be distinguished. The first treats self-employment as the only way of avoiding unemployment. According to this view self-employment is countercylical and acts as a buffer. The second reason emphasises the entrepreneurial, risk-taking nature of self-employment, which according to this view is procyclical and similar to wage employment. This article examines these views by looking at labour market flows obtained from the Polish LFS. As the self-employed account for about 20% of the working population in Poland knowledge about their behaviour over the business cycle is of particular importance. The results point to countercyclical behaviour of self-employed farmers and the entrepreneurial nature of own-account workers and entrepreneurs with employees.

Acknowledgement

The author would like to thank Pawel Strzelecki, Michal Gradzewicz, Ryszard Kokoszczynski and two anonymous referees for valuable comments.The usual disclaimer applies.

Notes

1. We define these firms as those with less than nine employees.

2. A problem concerning LFS data is the discontinuity of the survey during 2q1999–3q1999. To obtain the missing data we interpolate using the nearest observations.

3. We distinguish 3 kinds of self-employment and three other labour market categories (wage employment, unemployment and inactivity). Analysing all flows between self-employment and other labour market categories we obtain 18 flows based on quarterly data. The same analysis was repeated for yearly data. Altogether we thus obtain 36 flows.

4. The results of the test are shown in Table A2 in the Appendix.