Emerald Management Reviews

Design/methodology/approach - Reviews the associated literature, and presents background information on the relationship between self-employment and unemployment in the form of an algebraic model, extended to a two-equation vector autoregression (VAR) model. Uses data on unemployment and self-employment rates for 23 OECD countries for the period 1974 to 2002, to explore the relationships between self-employment and unemployment rates. Applies the two-equation VAR model to the data in order to estimate both changes in unemployment and self-employment as a common measure of entrepreneurship.

Findings - Confirms the existence of two distinct relationships between unemployment and self-employment: changes in unemployment have a positive impact of subsequent self-employment - the refugee effect; and countries with a greater increase in entrepreneurial activity also experience systematically higher employment growth rates - the entrepreneurial effect.

Research limitations/implications - Acknowledges a difficulty in directly tracing the factors that influence the probability of moving from unemployment to self-employment at the micro-level.

Practical implications - Points to the fact that public policy to generate jobs and reduce unemployment is well served by focusing on entrepreneurship but that it takes considerable time for the results to become visible.

Originality/value - Contributes to the debate over the relationship between entrepreneurship and unemployment levels, with an attempt to reconcile ambiguities between two polar views on the relationship.