Chapter 8 Storey and Greene

Question 1

What is the labour market approach?

Answer 1

Assumes that the individual has a choice between 2 states: employment and self-employment
- to make this choice, individuals compare the expected or uncertain utility in self-employment to the certain utility in employment

Question 2

What are 5 criticisms of the labour market approach?

Answer 2

1) assumes individuals switch from one state to another at 0 cost (e.g. costs of registering a business, time and energy getting qualifications, cost of researching viability of business)
2) unrealistic to assume business owners are only interested in the income
3) makes no reference to chance or luck
4) assumes all individuals have the same motives
5) model assumes that profitability will be higher for individuals with higher entrepreneurial talent

Question 3

Why are women less likely to enter self-employment?

Answer 3

• ‘lack’ the qualities to start a successful business
• discrimination faced in the labour market
• more likely to have family responsibilities
  However:
• no objective qualities needed to set up a business
• greater family responsibilities may encourage self-employment due to higher level of flexibility

Question 4

How does age affect self-employment?

Answer 4

• those individuals who are middle aged (30-50) are more likely to set up a business than other age groups
• under 30 may lack business experience or access to capital
• older more likely to have access to own finance
• older may lack energy and commitment

Question 5

How does parental experience of self-employment affect self-employment?

Answer 5

• son/daughter could inherit a business
• more keenly aware of the entrepreneurial option
• parents may provide finance
  However:
• negative experience may dissuade
• if made wealthy they may lack motivation

Question 6

How does marital status affect self-employment?

Answer 6

• choice theory predicts that individuals who are married are expected to be more likely to enter self-employment than unmarried individuals
• many businesses only successful where there are unpaid contributions from staff
• with children: more likely to enter due to flexibility of hours

Question 7

How does ethnicity affect self-employment?

Answer 7

• self-employment particularly high amongst Egyptians, Chinese, Indiana and Pakistani individuals
• some ethnic groups may have a cultural propensity towards entrepreneurship
• asians said to have a cultural background that supports and promotes setting up a business

Question 8

What are the factors that facilitate self-employment?

Answer 8

age, ethnicity, sex, marital status, parental experience

Question 9

What is the relevance of labour market experience?

Answer 9

economists regard an individuals labour market experience as the second major influence (after personal circumstances) on whether or not they become self- employed

• prior managerial experience: likely to be more confident and have higher earning potential
• size of prior employer: those who have worked in smaller businesses likely to have done a wider variety of tasks and may be more likely to become self-employed
• prior business ownership: 1 in 5 business owners in the UK have previously been a business owner
• unemployment experience: if state benefits are high they are less likely to become self-employed

Question 10

What is said to be an important personality characteristic?

Answer 10

• optimism

- those who place less emphasis on job security are ore likely to be self-employed

Question 11

What are some criticisms of the economist approach?

Answer 11

• choice theory based on the individual having perfect knowledge
• choice theory assumes rationality on the part of the individual, whereas much of entrepreneurship is about hunches or gut feelings
• only focuses on income and ignores satisfaction, independence etc
• fails to understand diversity of motivations