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This paper reports the findings of a time series analysis exploring the fundamental determinants of the substantial rise in U.K. self‐employment over the period 1972–92. The key findings are that the self‐employed/wage‐employed income differential has a high and positive effect upon the proportion of the workforce in self‐employment, supporting alternative wage theories of labour market status, as does housing wealth, supporting credit‐rationing theories. Perhaps the most interesting feature concerns the relationship between unemployment and self‐employment. On this we find that it is the duration structure of unemployment that matters, not simply the stock of unemployed people. This evidence may imply that self‐employment is a last resort for certain individuals marginalized in the employed sector and facing lengthy spells of unemployment.
Cowling et al. (Mon,) studied this question.