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Essays in applied macroeconomics

Tabti, Bilal A. (2022) Essays in applied macroeconomics. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004499


This thesis is composed of three chapters. The first chapter studies the role of unemployment risk on business formation. It develops and estimates a partial-equilibrium search model with risky transitions to entrepreneurship. The decomposition of rising unemployment risk for wage workers into the fall of the job finding rate and the rise of the job separation rate highlights the role of the former in driving falling entry to self-employment from paid workers. The quantitative analysis also shows that higher aggregate unemployment risk can explain most of the 16% decrease in the self-employment rate after the Great Recession and predicts a significant worsening of the entrepreneurial pool. Empirically, the chapter exploits annual variation in industry unemployment rates to show that salaried workers are deterred from entering self-employment in sectors experiencing higher unemployment increases. The second chapter investigates the impact of unemployment benefits extensions during the Great Recession on self-employment. At the micro-level, it shows that longer UI duration was, on average, not associated with lower entry to self-employment. However, these findings hide heterogeneity among the newly self-employed: Those who work less than 20 hours per week on their business were 30% less likely to enter following eligibility to extended benefits, consistent with entry by necessity when jobs are hard to find. While there was a large variation in the number of UI weeks available at the macro-level, this chapter finds that changes in benefits duration did not affect state-level self-employment rates. The third chapter studies the role of changes in households’ balance sheets on new firm creation through changes in local 1 home values. It documents that new start-up founders were disproportionately more likely to have been turned down credit during the Great Recession. To study the impact of house price changes on start-up creation, it proposes a new instrumental variable strategy for house prices that exploits cross-sectional variation in mortgage debt-to-income ratios as a proxy for households’ borrowing constraints. This chapter finds that a 1% annual increase in house prices increases the start-up rate by 0.02 percentage points.

Item Type: Thesis (PhD)
Additional Information: © 2022 Bilal A. Tabti
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Supervisor: Young, Alwyn

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