Alina Malkova

Job market paper

Knockin’ on the Bank’s Door: Why is Self-Employment Going Down?

This study examines the decline in the ability to obtain financing as a potential explanation for the observed decrease in U.S. self-employment. The shrinking of the U.S. branch bank network since 2010 and increased average borrower-lender distance decreases the accessibility of the credit institutions for borrowers. To evaluate the impact of the credit market accessibility (CMA) on entry into self-employment, I disaggregate the self-employed into two categories: entrepreneurs whose businesses depend on business loans (Type-1) and other self-employed (Type-2). Using a novel data source (the Community Advantage Panel Survey database), I find that the proximity of credit market institutions has heterogeneous effects on the transition to self-employment. An improvement in CMA increases the likelihood of transition to Type-1 self-employment. But, for Type-2 self-employment, the effect is the opposite: the transition probability to Type-2 self-employment decreases and this type of self-employed more likely switches to paid-employment to be able to receive non-business related loans. Based on the estimates, the paper determines the effect of several improvements in credit market access (e.g., additional branch banks) on the two types of self-employment and paid-employment.