The Necessity of Self-Employment Towards Retirement

For this purpose we analyze labor market transitions for people between the ages of 50 and 63 using a dynamic multinomial logit model with unobserved heterogeneity. The results indicate that at the end of the career individuals with a weak labor market position have a relatively high probability to become self-employed, e.g. to end or avoid a period of unemployment or inactivity (necessity driven self-employment). Contrasting some earlier work, the results do not suggest that self-employment is used as a gradual retirement route for employees. A difference-in-differences analysis shows that job search requirements among unemployed older workers increased the outflow from unemployment and decreased the inflow into unemployment, but did not increase self-employment out of necessity or opportunity.