Entrepreneurship Versus Joblessness: Explaining the Rise in Self-Employment

59 Pages Posted: 11 Nov 2013

See all articles by Paolo Falco

Paolo Falco

University of Oxford - Centre of the Study of African Economies

Luke Haywood

German Institute for Economic Research (DIW Berlin)

Date Written: November 2013

Abstract

The self-employed constitute a large proportion of the workforce in developing countries and the sector is growing. Different accounts exist as to the causes of this development, with pull factors such as high returns to capital contrasted with push factors such as barriers to more desirable salaried jobs. Using data from Ghana, we investigate the changing structure of earnings in self-employment relative to salaried work. We decompose earnings in a two-sector labour market allowing for flexible patterns of sorting on unobservables by means of a correlated random coefficient model estimated by IV-GMM. A unique panel dataset provides us with suitable instruments to tackle the endogeneity of sector choice and capital accumulation. We show that returns to productive characteristics in SE have increased significantly over the period 2004-11 and the sector has attracted workers with higher skills. We conclude that pull factors have significantly strengthened, pointing against the grim view of self-employment as an occupation of last resort.

Keywords: Self-employment, semiparametric models, comparative advantage, segmentation, African labour markets

JEL Classification: O15, J24, J42, C14

Suggested Citation

Falco, Paolo and Haywood, Luke, Entrepreneurship Versus Joblessness: Explaining the Rise in Self-Employment (November 2013). DIW Berlin Discussion Paper No. 1334. Available at SSRN: https://ssrn.com/abstract=2352903 or http://dx.doi.org/10.2139/ssrn.2352903

Paolo Falco

University of Oxford - Centre of the Study of African Economies ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Luke Haywood (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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