Out of the frying pan into the fire: displaced workers’ vocational skill specificity, self-employment, and income

Drawing on vocational specificity and push-based entrepreneurship literature, we ask whether the degree of vocational specificity is linked to the likelihood of displaced workers transitioning into self-employment, whether such transitions correlate with greater earnings declines, and whether self-employment in an industry distant from their pre-displacement industry exacerbates earnings declines. Based on the biennial Current Population Survey-Displaced Worker Supplements (CPS-DWSs) from 1986 to 2020, higher vocational specificity in the pre-displacement occupation is positively associated with odds of switching to self-employment. However, engagement in self-employment is associated with higher earnings losses, that further exacerbate when transitioning to industries more distant from the pre-displacement industry. The findings have implications for policymakers and researchers. Plain English Summary This study investigates whether displaced workers, those who involuntarily lose their jobs, are more likely to become self-employed and whether such choice improves income levels. Using data from Current Population Surveys conducted every 2 years between 1986 and 2020, the results show that workers with specialized skills in their previous jobs were more likely to become self-employed after losing their jobs. However, those who chose self-employment experienced greater earnings losses compared to those who found traditional employment after displacement. Interestingly, when displaced workers started businesses in industries more different from their previous ones, their earnings losses decreased. These findings have important implications for policymakers and researchers studying the experiences of displaced workers, and they highlight the trade-offs and potential challenges associated with self-employment in such situations. Thus, displaced workers with specialized skills are more likely to turn to self-employment but face higher earnings losses, and transitioning to different industries can reduce losses.