Not so risky business? How social policies shape the perceived feasibility of self-employment

Abstract:

This article addresses ongoing debates about whether the welfare state hinders or fosters self-employment. Starting a business can be an inherently risky undertaking and is thus not a feasible option for all people. Policies that have the potential to shoulder some of this risk can be particularly important for the decision to enter into self-employment.

Taking individual differences in terms of risk tolerance into account, we focus on unemployment protection for the self-employed – a type of risk which is particularly difficult to privately insure oneself against – in order to investigate the ways in which policy can shape people’s perceptions of self-employment.

We combine individual-level data from a 2009 Flash Eurobarometer survey with country-level data on unemployment policies in Europe in a multilevel design, finding that the presence of unemployment protection for the self-employed positively influences individual perceptions of the feasibility of self-employment. Risk-tolerant individuals, moreover, are found to be even more likely to assess self-employment as a feasible option in countries that offer unemployment protection to the self-employed.