SELF-EMPLOYMENT AND LABOR MARKET RISKS

I study the labor market risks associated with self-employment. I document that the self-employed are subject to larger earnings fluctuations than employees and frequently transition into unemployment. I analyze the provision of benefits targeted at these risks using a calibrated search model with (i) precautionary savings, (ii) work opportunities in paid- and self-employment, and (iii) skill heterogeneity. Extending the U.S. unemployment insurance scheme to the self-employed increases the transition rate from self-employment to unemployment and yields an unequal benefits to contributions ratio across skill groups. At the calibrated parameters, the self-employed in the middle of the skill distribution lose welfare.