Liquidity Constraints, Household Wealth, and Self-Employment

The Case of Older Workers

Julie Zissimopoulos, Lynn A. Karoly, Qian Gu

Published Jan 8, 2010

Evidence of liquidity constraints affecting entrepreneurship includes increasing rates of business formation with increases in household wealth and no relationship between the likelihood of business formation and wealth at high wealth levels. Using longitudinal data from the Health and Retirement Study on workers over age 50 and employing probit regressions with a non-linear specification of household wealth and liquid wealth, the authors find the relationship between wealth and business formation is consistent with this pattern. The paper also finds that wealth matters more for the formation of businesses requiring high starting capital. Employing the availability of a lump-sum distribution option (LSO) of an employer-provided pension plan as a new proxy for liquidity, the results show that workers with an LSO are more likely than workers with a pension and without an LSO to transition into self-employment. This provides further evidence of the existence and importance of liquidity constraints.

Topics

Document Details

Citation

RAND Style Manual
Zissimopoulos, Julie, Lynn A. Karoly, and Qian Gu, Liquidity Constraints, Household Wealth, and Self-Employment: The Case of Older Workers, RAND Corporation, WR-725, 2010. As of September 15, 2024: https://www.rand.org/pubs/working_papers/WR725.html
Chicago Manual of Style
Zissimopoulos, Julie, Lynn A. Karoly, and Qian Gu, Liquidity Constraints, Household Wealth, and Self-Employment: The Case of Older Workers. Santa Monica, CA: RAND Corporation, 2010. https://www.rand.org/pubs/working_papers/WR725.html.
BibTeX RIS

This paper series was made possible by the NIA funded RAND Center for the Study of Aging and the NICHD funded RAND Population Research Center.

This publication is part of the RAND working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.