Habitual entrepreneurs in the making: how labour market rigidity and employment affects entrepreneurial re-entry
Habitual entrepreneurs in the making: how labour market rigidity and employment affects entrepreneurial re-entry
Kun Fu 0 1 2
Anne-Sophie Larsson 0 1 2
Karl Wennberg 0 1 2
0 K. Wennberg (
1 A.<S. Larsson Ratio Institute , Stockholm , Sweden
2 K. Fu Loughborough University , London , UK
3 Linköping University , Linköping , Sweden
We investigate the impact of country-level labour market regulations on the re-entry decision of experienced entrepreneurs, whereby they become habitual entrepreneurs. Multilevel logit models on entry decisions among 15,709 individuals in 29 European countries show that labour market regulations have a positive influence on the decision to re-enter into entrepreneurship. This positive impact is stronger among individuals holding wage jobs at the time of re-entry compared to those that do not. Our results indicate that novice and habitual entrepreneurs may respond very differently to labour market rigidity. We discuss and provide tentative explanations for these differences and outline potential policy implications.
Habitual entrepreneurship; Employment; Labour market rigidity; Institutional context; Multilevel modelling
Entrepreneurship is not necessarily a one-off activity.
An important group of entrepreneurs is those that
have some form of prior start-up experience. These
are often called ‘habitual entrepreneurs’, defined as
those who have established at least one other business
prior to the current one
(Birley and Westhead 1993)
Within this category, further classifications such as
‘portfolio’ and ‘serial’ entrepreneurs have been used
to describe entrepreneurs managing one or multiple
businesses at a time
entrepreneurship is a sizeable and pervasive phenomenon,
Ucbasaran et al. (2008)
about 12 to 52% of entrepreneurial endeavours in
the UK, about 51 to 64% in the USA, 49% in
Australia, 40 to 50% in the Nordic countries, and 39% in
Malaysia. Looking at the sub-group of serial
entrepreneurship, studies have revealed that it accounts for
18 to 30% of the entrepreneurial activity in Europe
(Westhead and Wright 1998; Westhead et al. 2005;
1 In the academic literature, ‘serial entrepreneurs’ are sometimes
defined analogously to habitual entrepreneurs.
Plehn-Dujowich 2010).2 These entrepreneurs are of
particular importance since they have been found to
be more likely to identify valuable opportunities
(Shane 2003; Ucbasaran et al. 2003)
higher growth expectations (Westhead et al. 2005),
and generate better economic returns
et al. 2014)
than novice entrepreneurs. Economic
and managerial studies alike suggest that these
advantages accrue due to ‘learning by doing’
et al. 2014; Lafontaine and Shaw 2016)
entrepreneurial skills are difficult to learn before to entry.
Although many differences have been identified
between novice and experienced entrepreneurs in terms of
(Westhead and Wright 1998)
(McGrath and MacMillan 2000)
, and behaviours
Wiklund and Shepherd 2008)
, there are few systematic
studies on how the institutional context affects the re-entry
decision of experienced entrepreneurs. This is an
important gap in the literature since habitual entrepreneurs are
often heralded as the ones most likely to attract external
equity and scale their ventures into fast-growing
(Toft-Kehler et al. 2014; Lafontaine and Shaw 2016)
The lack of attention to external contingencies such as
prevailing institutions and regulations in studies of habitual
entrepreneurship is problematic since they are arguably
more generalizable than more heterogeneous
individualspecific factors. Further, institutional determinants of
habitual entrepreneurship ought to be of particular interest to
policy makers seeking to enhance not only the quantity but
also the quality of entrepreneurial endeavours in the
(Henrekson and Johansson 2008; Shane 2009)
Departing from a career choice perspective on
entrepreneurship, we model habitual entrepreneurship as an
occupational choice embedded within the context of
prevailing labour market regulations at the country level
(Kim et al. 2016)
. Such regulations can, at least in the
short term,3 have great impact on the rate of job creation
2 The shares range from 12 to 27% in our sample of European
countries based on Global Entrepreneurship Monitor (GEM) data (see
Table 2). As GEM does not provide information on whether
individuals are simultaneously running multiple firms, we cannot distinguish
serial and portfolio entrepreneurs. Our sample is comprised of founders
with prior entrepreneurial experience, and as such, it largely covers
serial entrepreneurship. However, since we cannot effectively exclude
‘portfolio entrepreneurship’, we use the term ‘habitual
3 Economic literature, referenced later on in this paper, shows that
labour market regulations tend to affect firing, hiring, and job
reallocation and that regulatory changes can affect productivity, job creation,
as well as (un)employment rates. These effects may, however, not be
persistent over time.
and unemployment of an economy, labour productivity
and social protection of employees, and costs and profits
(Betcherman et al. 2001)
. Whilst earlier
empirical evidence on the relationship between labour
market regulation and entrepreneurship is somewhat
dispersed (Román et al. 2011),4 several recent studies
have shown that stringent labour market regulations
decrease individuals’ likelihood of becoming
(Van Stel et al. 2007; Bosma 2009; Bosma and
Schutjens 2009; Ardagna and Lusardi 2010)
Under this framework, we ask how is the re-entry
decision into entrepreneurship of an individual with
prior start-up experience affected by the rigidity of
labour market regulations at the country level? We
further explore whether this effect has a consistent
pattern across different employment statuses, as a
significant amount of individuals choose to become
entrepreneurs whilst retaining their wage jobs
(Folta et al. 2010)
We argue that labour market rigidity influence the
reentry of experienced entrepreneurs and, furthermore,
that the magnitude of this influence depends on the work
status of an individual at the moment of re-entry.
Employed individuals will respond differently to
regulatory rigidity primarily because the costs and benefits
from occupational changes differ from those that are not
(Amit et al. 1995)
. Whilst being employed
results in higher opportunity costs than not being
employed when re-entering into entrepreneurship,
having a job upon entry may also serve to alleviate liquidity
and may signal ability since
foregoing paid employment under strict labour market
regulations is a decision likely to be well thought
(Bublitz et al. 2015)
. We suggest that these
factors make employed ex-entrepreneurs more likely
to become habitual entrepreneurs. Supportive of these
arguments, we find the effect of stringent labour market
regulations to be stronger among those who hold a
salaried job upon re-entry. The more rigid the
regulations, the larger the difference in re-entry likelihood of
employed and non-employed individuals is.
We employ multilevel modelling to test our
hypotheses drawing upon several large-scale datasets from
national surveys on entrepreneurship. We use the
GEM Adult Population Survey (APS) for
individual4 See, for instance,
Román et al. (2011)
for a review of earlier findings
on the effects of employment protection legislation and
for a review of studies that have more widely studied the effects
of regulations on entrepreneurship.
level data and the World Bank’s Ease of Doing Business
(WBEDB) dataset on employment rigidity for
nationallevel data on labour market regulation. Both samples
cover the period from 2006 to 2010. From the GEM
survey, we focus on all individuals with prior
entrepreneurial experience, in a total of 15,709 observations
from 29 European countries.
Our study contributes to the entrepreneurship
research in the following ways. First, we explore the
nuances by which institutional constraints such as
labour market regulations may affect various types of
entrepreneurship in differing ways, explicitly focusing
on individuals with prior entrepreneurial experience—
frequently depicted as high-potential entrepreneurs.
Second, we show that the effects of such contextual
barriers on the macro level may be contingent on
individuals’ work status, in this case, whether
exentrepreneurs enter from paid employment or not. Third,
our study provides nuance to the occupational choice
literature, which, by and large, has viewed wage work
and self-employment as discrete choices, overlooking
the importance of individuals who enter into
entrepreneurship whilst concurrently in employment
et al. 2008; Folta et al. 2010; Petrova 2012)
contribute to this stream of literature by demonstrating how
these ‘hybrid entrepreneurs’ may be differently affected
by the prevailing labour market regulations in their
(Schulza et al. 2016)
2 Theory and hypotheses
2.1 Entrepreneurship as a career choice
Economists, sociologists, and management scholars
alike have for long modelled individuals’
entrepreneurship from the perspective of their occupational choice
(Lucas Jr 1978; Douglas and Shepherd 2002;
PlehnDujowich 2010; Burton et al. 2016)
. This perspective
can be understood as Bthe vocational decision process in
terms of the individual’s decision to enter an occupation
as a wage or salaried individual or a self-employed one^
(Katz 1992, p. 30)
Studies rooted in the economic literature regard
career choices as based on the trade-off between
relative costs and benefits associated with different
career options. When faced with several
occupational options, individuals tend to choose a job (e.g.
employment or self-employment) that can maximize
their economic and non-economic utility. Individuals
will choose entrepreneurship if the expected utility
of self-employment exceeds that of other options
( D o ug l a s an d Sh e ph erd 20 00 , 20 02 ; Ple h
nDujowich 2010). This decision has also been shown
to be affected by factors such as individuals’
psychological attributes and skills
(Lazear 2004; Parker
2009; Åstebro and Thompson 2011)
, and human capital
. The movement between entrepreneurship
and paid employment has, furthermore, been proven
quite common. Instead of being treated as an end
(Earle and Sakova 2000)
, entrepreneurial career
choice has increasingly been investigated from a
transi tion a nd mobi lity angle
( Douglas and
Shepherd 2002; Sørensen and Fassiotto 2011)
where individuals can switch between different
occupational options. For example, a potential
entrepreneur may decide to take on a salaried job
following a utility-maximising strategy and switch to
selfemployment once it emerges as the best option at a
given time (e.g. a good opportunity appears, funding
key partners or personnel becomes available)
(Douglas and Shepherd 2002). If entrepreneurship
becomes less beneficial and rewarding, the
entrepreneur may consider leaving the current venture and
seek employment at an established firm
et al. 2016)
. Habitual entrepreneurship can, in part,
be viewed as an outcome of this process.
To date, few studies have explicitly modelled the
occupational choice of habitual entrepreneurs. In a formal
entrepreneurial skills and business quality are complementary to each
other. High-skilled entrepreneurs become serial
entrepreneurs through constantly looking for high-quality
ventures that generate a high expected value (profit), whilst
low-skilled ones will not become serial entrepreneurs.
However, such a formal model does not square very well
with the existing evidence where low-skilled individuals
often seem to be driven out of the labour market and
therefore engage in multiple or serial necessity-driven
(Gottschalk et al. 2017)
developed a more comprehensive career choice
model that allowed for the possibility that individuals
may explore multiple entrepreneurial opportunities at
the same time. The current study builds upon and extends
this line of discussion by including the situation where
employment and entrepreneurial opportunities are
2.2 Labour market regulation and entrepreneurial career
Institutional economics depicts labour market
institutions as parts of the ‘rules of the game’ for
conducting business, regulating the costs and
benefits of certain economic activities. Entrepreneurs as
economic actors are embedded within this context.
Research has shown that economic, political, or
sociocultural conditions at the national level influence
individuals’ decisions of whether and how to pursue
(Levie and Autio 2011;
Urbano and Alvarez 2014)
and that a favourable
institutional context increases the incidence of
highquality entrepreneurship that has great potential of
contributing to the society
(Baumol 1990; Henrekson
and Johansson 2008, 2010; Autio and Fu 2015)
Labour market regulations cover a wide range of
rights and responsibilities of the parties involved in the
labour market for the purpose of efficiency or equity.
Such regulations can have great impact on the rate of job
creation and unemployment of an economy, labour
productivity and social protection of employees, as well as
cost and profits of employers
(Betcherman et al. 2001)
The economic literature on the effects of labour
market regulations,5 especially on hiring and firing
and (un)employment, is vast. Stringent employment
protection has been argued to stabilize employment,
perhaps especially through reducing firings in
recessions. Empirical studies have shown that regulatory
stringency tends to be associated with less turnover
and job reallocation
(Von Below and Thoursie 2010;
Bassanini and Garnero 2013)
Stringent labour market regulations have also been
argued to deter firm growth and job creation
Scarpetta 2004; Henrekson et al. 2010)
, and empirical
findings show that increased regulatory flexibility, at
least in the short term, can have a job-creating effect
(Boeri and Garibaldi 2007)
and increase productivity
(Autor et al. 2007; Bassanini et al. 2009)
. The empirical
evidence on the relationship between labour market
regulation and entrepreneurship is, however, relatively
sparse. We conducted a literature review by keyword
searches and summarize the recent studies using
comparable data in Table 1.
Table 1 shows that, with somewhat varying results,
all of the recent studies that utilize the GEM data
5 Often measured in terms of ‘employment protection legislation’
indicate that stringent labour market regulations can
have negative effects on entrepreneurial activity. Using
the GEM data for 39 countries during the years 2002–
2005, Van Stel et al. (2007) found a strong negative
effect of stringent labour market regulations—in terms
of rigidity of employment and rigidity of hours—on
entrepreneurship rates. A study by
on Dutch regions found that labour
protection has strong adverse effects on the level of
growth-oriented entrepreneurship but found no effect
on ‘low growth-oriented early-stage entrepreneurship
activity’.6 In another study,
strong negative relationship between employment
protection and growth-oriented entrepreneurship, but no
significant effects on low-growth-oriented
entrepreneurship, using a similar multilevel methodology as in the
Ardagna and Lusardi (2010)
GEM data for 37 predominantly high-income countries
in 2001–2002 and found that labour market regulations
curtail the otherwise strong and positive effects of social
networks, especially for opportunity entrepreneurs.
These results are in line with earlier findings that
have shown that stringent labour market regulation can
decrease individuals’ likelihood of becoming
entrepreneurs as the earning risk in self-employment is much
higher than that in paid employment
of the studies that we have surveyed have studied either
novice or nascent and, sometimes, young,
entrepreneurial activity.7 Distinctions based on motivation
(opportunity or necessity) and growth aspirations (high or low)
are frequent, but to the best of our knowledge, no
previous study has singled out the effects of labour
market regulations on habitual entrepreneurs.
Given the sparsity of empirical literature on the
potential effects of labour market rigidity on individuals’
likelihood of re-entering into entrepreneurship, we turn
to the general economic literature on the effects of
employment protection as guidance for theorising. This
literature suggests that higher labour market rigidity
may lead to increased hiring costs and more complex
recruitment processes: increasing the requirements for
6 Mostly European NUTS-1, and in some instances NUTS-2, NUTS-3,
or RORs (Germany), was also included.
7 A study by
Bjørnskov and Foss (2008)
used the 2001 wave of GEM
data to investigate the relationship between regulations and
entrepreneurship and found no statistically significant effects using a
compounded ‘regulatory quality’ variable composed of three
subindices of the Economic Freedom of the World index. It should be
noted that the 2001 GEM data is known to be rather unreliable
compared to subsequent years.
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employment and dampening the demand for labour
(Autor et al. 2007)
, effectively raising the thresholds
for, and decreasing the probability of, attaining paid
(Lindbeck and Snower 1986)
Individuals with entrepreneurial experiences often
have career breaks due to having taken time off to
develop their own business
(Hyytinen and Rouvinen
. The relevance and consistency of their work
experiences can therefore sometimes be called into
question when they try to make a shift from
selfemployed to wage earners. Entrepreneurs tend to be
characterised as ‘jacks-of-all-trades’ with a balanced
, a feature that potential
employers may, however, equate with a lack of
specialisation and expertise
(Åstebro and Thompson 2011)
Employers may also shun individuals with entrepreneurial
experiences as potentially difficult to retain, effectively
deterring them from hiring ex-entrepreneurs in the first
place. Consequently, the search costs of a wage
employment for individuals with entrepreneurial experience
These theoretical mechanisms are likely to be
exacerbated by rigid regulations that make
employers ‘err on the side of caution’. The stricter the
labour market regulations, the more likely former
entrepreneurs are to be excluded from employment
opportunities, increasing their likelihood to enter
self-employment again, effectively becoming
habitual entrepreneurs. We thus propose
Hypothesis 1: Among individuals with entrepre
neurial experiences, high country-level labour
market rigidity increases individuals’ likelihood of
2.3 Entrepreneurship and concurrent employment status
Occupational choices are, however, not mutually
exclusive. Occupational choice theory tends to assume that
individuals will choose between paid employment,
selfemployment, or unemployment one at a time depending
on the cost and benefit associated with each
(i.e. Douglas and Shepherd 2002)
people have been shown to often start a new business
whilst retaining a wage-earning job. When possible,
retaining a salaried job whilst engaging in an
entrepreneurial activity provides people with complementary
income and offers the possibility to learn more about
the new venture and the personal fit with the new
business whilst minimising sunk cost
(Folta et al.
2010; Raffiee and Feng 2014)
. Stable income from
employment allows individuals to have a transition
stage from part-time to full-time entrepreneurship and
may serve to alleviate liquidity constraints in the early
stage of the new venture
(Colombo and Grilli 2007;
Petrova 2012; Frid et al. 2016)
. Furthermore, having
paid employment sends signals of ability which is
important for potential stakeholders when launching a new
venture (Bublitz et al. 2015). Empirical findings by
Bosma and Schutjens (2009)
and Ardagna and Lusardi
(2010) support the notion that employment status plays
a role in the decision of becoming an entrepreneur:
unemployed individuals, students, and retired
individuals are overall less likely to become entrepreneurs than
employed individuals are. This rationale should be
especially relevant for individuals with prior
entrepreneurial experiences who have learned about the time
necessary to start a new venture and the financial costs this
(Kim et al. 2006)
. We therefore propose
Hypothesis 2: Among individuals with entrepre
neurial experiences, being employed, either
parttime or full-time, increases individuals’ likelihood
of entrepreneurial re-entry.
It is also possible that employed and non-employed
individuals will respond differently to the rigidity of
labour market regulations when considering a potential
re-entry into entrepreneurship.
Higher labour market rigidity not only increases
the cost of firms hiring people but also implies
increased costs for dismissals, sometimes equated
to a tax on firing
(Autor et al. 2007)
. Faced with
such costs, dismissals tend to become less frequent
and the demand for labour dampened, at least in the
short run. As such, stringent employment protection
is often associated with lower productivity,
especially when it comes to the regulatory rigidity of regular
(Bassanini et al. 2009)
. Strict employment
protection could thus offer employed individuals the
opportunity to, at least temporarily, decrease their
job effort without great risk of being laid off,
fostering a beneficial situation for early-stage hybrid
entrepreneurship. This effect is also likely to be
exacerbated when coupled with strong restrictions
on the maximum length of working days and hours,
night and weekend work, and vacation days as this
will grant employees more flexibility to allocate
their time. When overwork is restricted, people’s
earnings are also limited. They will try to find other
ways to gain supplemental income. The more rigid
the labour market regulation, the more flexibility
and security the employees will gain, whilst
increasing the need for supplemental income. Based on the
above analyses, we propose that
Hypothesis 3: Among individuals with
entrepreneurial experiences, the effect of labour market
rigidity on individuals’ likelihood of becoming
habitual entrepreneurs depends on their employment
status, such that the positive effect of regulatory
rigidity is stronger for individuals holding a wage
job upon entrepreneurial re-entry.
3.1 Data and sample
We use the GEM APS for individual-level data on
entrepreneurship. The GEM is an annual survey
collecting micro-individual-level data on
entrepreneurial attitudes, activities, and aspirations
et al. 2005)
. This database covers a yearly random
sample of working-age adults (18–64 years old) in all
29 countries under investigation over the periods 2006
to 2010. We draw the sample from the population that
has indicated that they have prior entrepreneurial
experience. The GEM questionnaire captures this
information by asking: BHave you alone or with other,
started business in the past that you owned and
managed?^ There are, in total, 15,709 observations
included in the sample. We use the WBEDB dataset for the
same time period, which records three elements of
employment rigidity index: difficulty of hiring index,
rigidity of hours index, and difficulty of firing index
that reflect the rigidity in the regulation of employment
in a given country
(Botero et al. 2004)
3.2 Variables and measures
3.2.1 Dependent variable
Entrepreneurial re-entry Our dependent variable of
focus is the re-entry into entrepreneurship by an individual
with prior entrepreneurial experience
, measured by a dummy variable taking
the value 1 for re-entry and 0 otherwise.
3.2.2 Independent variables
Labour market rigidity Labour market rigidity
captures the flexibility in the regulations of employment
in a given country. It is measured by the
employment rigidity index from the WBEDB, which is
based on the average value of three sub-indices: a
difficulty of hiring index, a rigidity of hours index,
and a difficulty of firing index, with higher values
indicating more rigid labour market regulation.
Similarly to Van Stel et al. (2007), who used similar
variables for their country-level analysis, we rely
solely on the employment rigidity index and not
the three separate indices from the WBEDB since
these are highly collinear.
Employment status Current main employment status or
current working situation for each individual was coded
into seven categories: full-time work, part-time work,
unemployed, retired or disabled, student, homemaker,
(Bosma et al. 2012)
. Based on the above
information, individuals with prior entrepreneurial
experience are grouped into one of two broader categories:
those who are employed (i.e. those currently engaged in
part- or full-time work) and those who are not employed
(i.e. all others).
3.2.3 Control variables
Individual-level control variables We control for a set
of individual-level variables related with one’s
propensity of participating in entrepreneurial activities. Age of
an individual is measured in years. Gender takes the
value 1 for females and 0 for males. Education takes the
values of 1, 2, 3, 4, and 5 for individuals that have
received the following: no education, primary
education, secondary education, post-secondary, and graduate
education, respectively. Household income takes the
values of 1, 2, and 3 for the lowest-, middle-, and
highest-income tiers in the population, respectively.
Fear of failure indicates whether fear of failure would
prevent the individual from setting up a business (1 =
yes, 0 = otherwise). Entrepreneurial knowledge and
skills indicates if the individual perceived himself or
herself as having the required skills and knowledge to
start a new business (1 = yes, 0 = otherwise).
Country-level control variables We control for the TEA
rate—the prevalence rate of total early-stage
entrepreneurial activities in a country—as the relative presence
of entrepreneurs likely affects individuals’ likelihood of
engaging in entrepreneurship
(Bird and Wennberg
. Several macro-economic factors associated with
entrepreneurial activities have been introduced into the
models as control variables as they have been shown to
have a significant impact on the nature of
entrepreneurial activity (Autio and Fu 2015). Since a country’s
wealth has been shown to influence the prevalence of
entrepreneurial activity, we control for GDP per capita
(USD) adjusted for purchasing power parity (PPP), and
annual GDP growth rate
(Levie and Autio 2011)
Population growth captures the growth of potential market,
measured as the annual percentage population growth
rate in a country. Finally, we control for the institutional
effect of ease of starting a business as well as current
unemployment rate, both from the World Bank datasets.
3.3 Data analyses
We employ multilevel regressions for testing the
hypotheses due to the hierarchical structure of the dataset
where individual-level observations are unevenly nested
(Hofmann et al. 2000)
. A two-level model
with random intercept is specified to assess the variation
in the probability of becoming a habitual entrepreneur
by factoring in both the impact of labour market
regulations at the country level and the influence of work
status at the individual level. The model is specified as
Level 1 equation:
Y ij ¼ β0 j þ β1 jX ij þ eij
Level 2 equation:
β0 j ¼ γ00 þ γ01W j þ u0 j
β1 j ¼ γ10 þ u1 j
The level 1 equation predicts the direct effects (i.e.
betas) of level 1 predictors on level 1 outcomes, where
Yij is the dependent variable for an individual
observation at level 1. Xij is the individual-level (level 1)
predictor where i refers to the individual and j to the country
of residence. β0j is the intercept of the dependent
variable in country j (level 2). β1j is the slope for the
relationship in country j between the individual-level
predictor and the dependent variable. eij is the
individual-level residual. The level 2 equations predict
the effects (i.e. gammas) of level 2 predictors on level 1
betas as well as on the level 1 intercept, where γ00 is the
overall intercept, which is the mean of the intercepts
across countries. Wj is the country-level predictor. γ01 is
the slope or main effect of country-level predictor. γ10 is
the slope or main effect of individual-level predictor. u0j
and u1j are country-level residuals.
Multilevel equation of the current study
Y ij ¼ γ00þγ01Labor market rigidity j
þ γ02GDP per capita j þ γ03GDP growth j
þ γ04Population growth j
þ γ05Ease of starting a business j
þ γ06Unemployment rate j þ γ07TEA rate j
þ γ10Employment statusij þ γ20Genderij
þ γ30Ageij þ γ40Incomeij þ γ50Educationij
þ γ60Fear of failureij
þ γ70Entrepreneurial skillsij þ u0 j þ eij
To facilitate the interpretation of meaningful
effects, we computed average marginal effects (AMEs)
for all independent variables. For continuous
variables such as labour market rigidity, AMEs represent
the instantaneous rate of change for the variable of
interest. Since it is more informative to show the
predictive margins over a set of values of variables
(Brambor et al. 2006)
, we calculated the
predicted probability of the habitual entrepreneurship
over a set of observed values of labour market
rigidity and present the results graphically.
Before zooming into our analyses, some overall
trends are noteworthy to report. Descriptive statistics
based on the GEM data over the periods 2001 to
2010 (overlapping our period of analysis) indicates
that throughout Europe, the prevalence rate of
opportunity-driven entrepreneurship (12.12%) is
nearly three times higher among individuals with
prior entrepreneurial experience than the rate among
those who have not started any business before
(3.55%). Among those currently owning and
managing a business, habitual entrepreneurs are more
likely to have a business with a product innovation
(46.61 vs. 40.66%) and a higher growth expectation
(15.66 vs. 10.03%) than the novice entrepreneurs.
Table 2 shows the average value of labour market
rigidity measured across 5 years in the 29 European
countries of our sample, with higher values indicating
more rigid labour market regulation. In our data, France
is the most rigid country in terms of labour market
regulation and Denmark the most flexible.
We plotted ‘caterpillar’ graphs to show the
countrylevel variances in habitual entrepreneurial activity
(Fig. 1), finding that the levels of habitual
entrepreneurship vary significantly across the European countries.
There are five countries with confidence intervals
distinctly lower than 0, in particular for Denmark, France,
and Belgium, and five countries with confidence
intervals distinctly higher than 0, Spain and Latvia being the
most prominent ones.
Table 3 provides descriptive statistics for all the
explanatory and control variables in the current
study. Table 4 shows the correlation matrix for the
individual-level variables and country-level controls
and predictors. Variance inflation factors (VIFs) for
all variables were between 1.05 and 2.57, indicating
a low risk of multicollinearity.
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Table 5 shows results from the multilevel logit
model. Model 1 in Table 5 is the baseline model including
control variables only. Model 2 shows the main effects
with key explanatory variables, and model 3 shows the
cross-level interaction results.
For the main effects we find, as expected, that labour
market rigidity is positively related to the probability of
entrepreneurial re-entry among experienced
entrepreneurs, i.e. becoming habitual entrepreneurs (odds ratios
(ORs) = 1.173, p < 0.05; AME = 0.022, p < 0.05). This
All descriptive statistics based on N = 15,709
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confirms hypothesis 1 in that rigid labour market
regulations increase individuals’ likelihood of re-engaging in
entrepreneurial activity. Holding all other variables
constant at their observed values, the average marginal
effects of labour market rigidity increase the likelihood
that experienced entrepreneurs will re-enter by 2.2%.
Turning to the variable ‘employment status’, we find
this to be positively related to the probability of
entrepreneurial re-entry (OR = 2.766, p < 0.001), supportive
of hypothesis 2. Individuals holding wage jobs, either
part-time or full-time, are thus more likely of becoming
habitual entrepreneurs. The average marginal effects of
employment status increase the likelihood that an
experienced individual will again engage in entrepreneurship
by 14% (AME = 0.14, p < 0.001).
The cross-level interaction effect between
countrylevel labour market rigidity and individual-level
employment status is shown in model 3. This model shows
that the effect of labour market rigidity on the
probability of entrepreneurial re-entry depends on one’s
employment status (OR = 1.227, p < 0.01), meaning that under
stringent labour market regulations, individuals that
hold wage jobs are more likely to re-enter into
entrepreneurship than those who are not employed. We present
the interaction effect graphically since it varies with the
values of the two interacted variables, as well as with the
values of other covariates
(Brambor et al. 2006)
Figure 2 shows plotted predictive marginal effects of
labour market rigidity at a set of observed values for
individuals with or without current employment with a
95% confidence interval, revealing that the impact of
Fig. 2 Interaction effects of
labour market rigidity and
employment status on probability
of entrepreneurial re-entry:
labour market rigidity on entrepreneurial re-entry is
constantly stronger for employed individuals. Figure 3
shows that the differences in the predicted probability
over the observed values of labour market rigidity are
statistically significant between individuals with or
without current employment, supporting hypothesis 3.
4.1 Robustness tests
We conducted a series of robustness tests, available in
the Appendix (Online Resource). We specifically
examined alternative measures for labour market rigidity, split
the sample into necessity and opportunity-driven
habitual entrepreneurship, and examined whether
entrepreneurial re-entry is dependent on previous
entrepreneurial failure or success. We, furthermore, ran our models
on all entrepreneurs without start-up experience in the
GEM data for the same time period to accommodate an
assessment of differing responses to regulatory rigidity
among novice and habitual entrepreneurs, as well as to
make sure that our results for novice entrepreneurs were
in line with previous findings.
Our study is among the first to focus on institutional
factors shaping the entrepreneurial re-entry decisions.
The results of our multilevel logit models on entry
decisions among 15,709 individuals in 29 European
countries show that labour market rigidity is positively
Predictive Margins with 95% CIs
Labour Market Rigidity
Fig. 3 Interaction effects of
labour market rigidity and
employment status on probability
of entrepreneurial re-entry:
conditional marginal effect
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60
Labour Market Rigidity
associated with re-entry into entrepreneurship.
Moreover, employed individuals are more likely to make
the re-entry decision under stringent labour market
regulation, whilst those who are not employed at the time of
re-entry are less likely to do so.
This study is, to the best of our knowledge, the first
one to explicitly analyse the effects of labour market
regulations on the re-entry decision of individuals’
with previous entrepreneurial experience, frequently
depicted as a high-potential group of entrepreneurs.
We show that contextual barriers on the macro level—
such as labour market regulations—can exert direct
impact, as well as indirect impact via the labour
status, on individuals’ entrepreneurial re-entry decision.
In doing so, the study furthers research on
entrepreneurship in general and that of habitual entrepreneurs
in particular, highlighting that institutional conditions
may need to be incorporated in studies of
entrepreneurial occupational choice. Our findings regarding
the interaction between labour market regulations and
employment status for ex-entrepreneurs’ prospective
re-entry into habitual entrepreneurship shed valuable
insights on hybrid entrepreneurship and the potential
importance of concurrent employment in the early
stages of new firm formation
(Burke et al. 2008;
Folta et al. 2010; Petrova 2012)
. We demonstrate
how these hybrid entrepreneurs may be differently
affected by the prevailing labour market regulations
in their society
(Schulza et al. 2016)
Contrary to previous studies that have found a
negative association between rigidity of labour
market regulation and individuals’ entrepreneurial
activity, we demonstrate that there exists a positive
effect of labour market rigidity on the decision to
re-enter into entrepreneurship. When dividing the
sample based on entrepreneurial motivations in the
robustness tests, we found similar statistically
significant positive effects of labour market rigidity
and employment on both necessity-driven and
opportunity-driven habitual entrepreneurship. Our
robustness tests of the impact of labour market
rigidity on the entry of novice entrepreneurs
rendered quite different results: more rigid regulations
have a statistically significant negative effect on
opportunity-driven entrepreneurship, but no
significant effect on necessity-driven entrepreneurship
(although the sign was positive). The results in our
robustness tests of novice entrepreneurs thus seem
to be largely in line with other relatively recent
findings of the effects of labour market regulations
on entrepreneurship. A likely explanation for the
distinct patterns of the effects of labour market
regulation on novice and habitual entrepreneurship
may be that opportunity-seeking individuals with
prior entrepreneurial experience are equipped with
greater knowledge, skills, and confidence in
identifying potential opportunities and making the
reentry decision, compared to those pursuing their
very first ventures. Still, among those with prior
experience, there is also a sizeable body of
necessity-driven entrepreneurs who may be forced
to re-enter into entrepreneurship due to the high
thresholds for obtaining paid employment in labour
markets with rigid regulations.
5.1 Policy implications
Our results come with both theoretical and policy
implications: in economies with rigid labour market
regulations, ex-entrepreneurs could be ‘punished’
and thus forced to engage in necessity-driven
entrepreneurship due to higher barriers re-entering into
employment. Such a pattern would be consistent
with other European evidence suggestive of
entrepreneurial experience not being seen favorable by
(Hyytinen and Rouvinen 2008)
In contrast with the negative impacts of labour
market regulations on high-potential or high-quality
entrepreneurship found by other studies, our study has shown
that labour market regulations play a surprisingly
positive role in driving ex-entrepreneurs to explore good
opportunities again, becoming opportunity-driven
habitual entrepreneurs. Knowledge and skills acquired
through prior entrepreneurial experiences may help
them to more effectively identify emerging
opportunities for high-potential businesses
(Westhead et al. 2015)
as well as foresee and more thoroughly understand the
potential risks and costs associated with creating a new
(Sarasvathy et al. 2013)
. Holding a salaried job
upon entry is a way to reduce opportunity cost and
alleviate potential liquidity constraints when launching
a new venture
(Folta et al. 2010; Raffiee and Feng
. The relative importance of having a job upon
entry is, however, likely to depend both on the rigidity
of labour market regulations and on the capital market
available for entrepreneurs (Delmar et al. 2011).
There is also the possibility that (mis)perceptions
of regulatory stringency, rather than actual regulatory
stringency, may affect novice and habitual
entrepreneurs differently. By analysing survey data from
5000 German university students,
showed that the students tend
to be overconfident in their knowledge of labour
market regulations and that their perceptions often
deviate from the actual regulations. These
misperceptions greatly affected students’ willingness to become
self-employed. The widespread instance of small
business exemptions could potentially also be a
factor here. A study by
, which covered
small business exemptions in many of the countries
in our sample, showed that the exemptions can be
quite far reaching. For instance, in Germany, firms
with ten or fewer employees are exempt from regular
employment protection legislation; in Italy, firms
with less than 15 employees are not required to pay
back pay or reinstate employees that have been
unfairly dismissed, and the same goes for Turkey, but
the cut-off is at 30 employees. Experienced
entrepreneurs ought to have greater knowledge of the actual
effects of the regulations (e.g. have fewer
misperceptions and a better understanding of potential
exemptions) and may as such to greater extent discount for,
for their intents and purposes, superfluous
regulations when making their re-entry decision. Novices,
on the other hand, may, due to their inexperience, be
more wary of regulatory rigidity, which offers an
explanation for why our results differ from previous
empirical findings on the effects of labour market
regulations on entrepreneurship.
Our study further reveals employment as a key
external driver of the re-entry into entrepreneurship. The
positive influences of rigid labour market regulations
become stronger for those employed upon entry,
meaning that non-employed individuals—‘outsiders’ in
Lindbeck and Snower’s (1986)
likely to re-enter into entrepreneurship when labour
market regulations are stringent. Also, this finding
comes with policy implications. First, policies that aim
to increase employment, in general, may be the most
beneficial policy measure for increasing entrepreneurial
activity in European countries. Second, many European
countries have one-sidedly eased the employment
protection for temporary contracts during the last decades,
keeping the level of protection for permanent contracts
largely intact. An occurrence that may have created
more flexibility, yet, at same time, increased the labour
market segmentation and deepened the insider-outsider
(Blanchard and Landier 2002; Cahuc and
. This type of dualism can have a strong
negative impact on already marginalised groups,
especially younger individuals, who may be pushed into
involuntary temporary employment (Skedinger 2011).
Future research may want to pose the question to what
extent this type of regulatory dualism also pushes
individuals into involuntary entrepreneurship.
5.2 Future research
Future research may also seek to model the effects of
labour market rigidity on new ventures that have
reached various stages of growth. It is well known that
‘entrepreneurs’ is a heterogeneous group, with most of
the entrepreneurs having no or very few employees
(Davidsson and Henrekson 2002; Davidsson et al.
. Whilst stringent labour market regulations may
discourage novice individuals with high growth
expectations from engaging in entrepreneurial activities as
they may hamper the growth of their firms, there is still
limited evidence in regard to how labour market
regulations affect entrepreneurial team formation (Held et al.
2018) and start-up growth
(Bornhall et al. 2017)
Another interesting pathway for future research is
to study other contingencies by which institutional
conditions such as labour market regulations affect
entrepreneurship. In addition to the conditional
effects found for current employment status, other
individual-level contingencies such as fear of failure
(Ardagna and Lusardi 2010)
or perceptions of
(Autio et al. 2013)
may shape the
impact of country-level institutions on individuals’
likelihood of entering into, as well as succeeding in,
entrepreneurship. Incorporating other institutional
contingencies in future research on habitual
entrepreneurs holds promise for theoretical advancements
and for more successful public policy design.
Open Access This article is distributed under the terms of the
Creative Commons Attribution 4.0 International License (http://
creativecommons.org/licenses/by/4.0/), which permits
unrestricted use, distribution, and reproduction in any medium, provided
you give appropriate credit to the original author(s) and the source,
provide a link to the Creative Commons license, and indicate if
changes were made.
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