Dependent self-employment as a way to evade employment protection legislation
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This paper examines whether the strictness of employment protection legislation encourages employers to contract out work to their own paid employees by the formula of dependent self-employment, while making transitions to independent self-employment less likely by altering the relative valuation of risk between salaried work and self-employment in favour of the former. In conducting this analysis, discrete choice models are applied to data drawn from the European Community Household Panel from 1994 to 2001. To test the hypotheses, a tentative individual measure of the potential severance payment that a worker would receive in the case of dismissal is included as well as aggregated variables that try to capture differences in labour market institutions and macroeconomic conditions. Evidence for a positive impact of the strictness of employment protection legislation and the potential severance payment on transitions to dependent self-employment is found. The opposite effects, however, are detected for individuals becoming independent self-employed.
KeywordsEntrepreneurship Self-employment Dependency Contracting out Occupational choice Labour market institutions
JEL ClassificationsJ24 J38 J65 K31 L24 L26
The authors would particularly like to thank the editor, Simon Parker, two anonymous referees and María Rochina for their helpful comments and suggestions. They also thank Jolanda Hessels, Juan Máñez, Juan Sanchis, Roy Thurik, Mirjam van Praag, André van Stel, Ingrid Verheul, Sander Wennekers and participants at an EIM Business and Policy Research Seminar (Zoetermeer, 2008), the ERIM Research Workshop on Institutions and Entrepreneurship (Rotterdam, 2008), the XI World Economy Meeting (Huelva, 2009) and the XII Applied Economics Meeting (Madrid, 2009). This research is part of the project PRY115/09, which has been funded by the Fundación Centro de Estudios Andaluces (5th announcement for research projects grants). The usual disclaimer applies.
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