Logit Analysis in a Rotating Panel Context and an Application to Self-Employment Decisions

24 Pages Posted: 10 Jan 2017

See all articles by Patricio Aroca Gonzalez

Patricio Aroca Gonzalez

Universidad Católica Del Norte

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Date Written: February 28, 1999

Abstract

The authors derive a methodology for analyzing logit models in a rotating panel context. They then apply the technique to test two theories of why and when salaried workers enter the informal self-employed sector. In the traditional view, workers fired from formal jobs queue in the informal sector to reenter the formal sector. The authors argue that for many, self-employment is a desirable goal, but that credit constraints often dictate that they work in the formal sector until enough start-up capital is accumulated. They model the decision to move as a stopped Markov process in which, in each period, the worker compare accumulated savings with the target level for switching sector dictated by the forecasted stream of discounted utility arising from employment labor and capital in each sector. They test and find support for the model using the new logit methodology and rotating panel data from Mexico.

Keywords: Environmental Economics & Policies, Banks & Banking Reform, Labor Policies, Health Monitoring & Evaluation, Work & Working Conditions, Public Health Promotion, Economic Theory & Research

Suggested Citation

Aroca Gonzalez, Patricio and Maloney, William F., Logit Analysis in a Rotating Panel Context and an Application to Self-Employment Decisions (February 28, 1999). World Bank Policy Research Working Paper No. 2069. Available at SSRN: https://ssrn.com/abstract=2894625

Patricio Aroca Gonzalez (Contact Author)

Universidad Católica Del Norte ( email )

Avenida Angamos 0610
Antofagasta, II Region 1270709
Chile

William F. Maloney

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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