Employees Who Become Self-Employed: Do Labour Income and Wages Have an Impact?

38 Pages Posted: 16 Feb 2006

See all articles by Pernilla Andersson

Pernilla Andersson

Stockholm University - Swedish Institute for Social Research (SOFI)

Eskil Wadensjo

Stockholm University - Swedish Institute for Social Research (SOFI); IZA Institute of Labor Economics; Stockholm University Linnaeus Center for Integration Studies (SULCIS)

Date Written: February 2006

Abstract

This paper analyzes the self-employment decision among Swedish-born male employees. The main objective of the paper is to investigate the impact of the relation between the actual and the predicted income on the probability to become self-employed. The predicted income is calculated from a standard income regression with controls for age, education, family status, family background and place of residence. By construction of a ratio between the actual and the predicted income we identify three groups of employees: (1) employees who have an actual income lower than the predicted income (underpaid), (2) employees with an actual income close to the predicted one, and (3) employees with an actual income higher than the predicted one (overpaid). The first question is if individuals who are overpaid or underpaid are more likely to become self-employed than those who are paid as we can expect. Our main finding is that employees who receive an income that differs from the one predicted by the income regression are more likely to become self-employed. We also analyse the effect of the ratio on four different measures of success as self-employed: income from self-employment, number of employees, turnover of the firm, and the probability to have a firm registered as a limited liability company. The general conclusion is that those who performed well as employees are also more successful as self-employed.

Keywords: self-employment, occupational choice, occupational mobility, labour income

JEL Classification: J23, J24, J30, J62

Suggested Citation

Andersson, Pernilla and Wadensjo, Eskil, Employees Who Become Self-Employed: Do Labour Income and Wages Have an Impact? (February 2006). IZA Discussion Paper No. 1971, Available at SSRN: https://ssrn.com/abstract=884476 or http://dx.doi.org/10.2139/ssrn.884476

Pernilla Andersson

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Kyrkgatan 43B
SE-106 91 Stockholm
Sweden

Eskil Wadensjo (Contact Author)

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Universitetsvägen 10F
SE-106 91 Stockholm
Sweden

IZA Institute of Labor Economics

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

Stockholm University Linnaeus Center for Integration Studies (SULCIS) ( email )

SE-106 91 Stockholm
Stockholm
Sweden

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