Labour Market Institutions, Learning and Self-Employment

Nikolaj Malchow-Møller*, James R. Markusen, Jan Rose Skaksen

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


We develop a dynamic partial-equilibrium model to analyse how labour market institutions (wage compression, minimum wages, unemployment benefits, mobility costs and fixed-costs of self-employment) and learning affect who and when people become self-employed. We find that certain ability groups of workers become self-employed for both “carrot” and “stick” reasons: Some prefer self-employment to the low institutionalised wage, while others are not productive enough to qualify for a job at the institutionalised wage. Furthermore, wage compression and learning may give rise to a class of switchers who start in wage employment and later switch to self-employment. Several predictions of the model are consistent with observed empirical regularities, such as the existence of a group of low-skilled self-employed workers, the increasing propensity for self-employment over age groups and the larger spread in earnings among self-employed.
Original languageEnglish
JournalSmall Business Economics
Issue number1
Pages (from-to)35-52
Number of pages18
Publication statusPublished - 2010


  • Entrepreneurship
  • Learning
  • Self-employment
  • Wage compression

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