Self-Employment in Italy: The Role of Social Security Wealth

Abstract

Using a rich micro dataset drawn from administrative archives, we explore whether Social Security Wealth (SSW) is an important factor affecting the decision to become self-employed in Italy. We focus on the two main categories of self-employed professions covered by the Italian public pension system: craftsmen and shopkeepers. We use the large exogenous variation in individual expected SSW that occurred as a result of the policy reform process undertaken in Italy during the 1990s to identify the effect of this variable and we study how the probability of being self-employed or employed depends, amongst other things, on the difference in the expected SSW that accrues under the two alternative employment scenarios. Our key finding is that a higher difference in expected SSW from self-employment compared to employment has a positive effect on the probability of being self-employed and on the probability of switching to self-employment, while it has a negative effect on the probability of switching from self-employment to employment. We also study how these effects vary with age and, in general, we find that the effect is, in absolute terms, stronger at younger and older ages.

Keywords: Self-employment, Social Security Wealth, Social Security reforms

JEL Classification: J26, J62, L26, H55