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The dynamic role of specific experience in the selection of self-employment versus wage-employment

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  • Cristian Pardo
  • Jaime Ruiz-Tagle

Abstract

What drives an individual to choose self-employment over a more traditional wage-earning job, or vice-versa? Expected earnings, income variability and other non-monetary aspects such as independence and job satisfaction are possible answers. This type of decision-making may be inherently dynamic as choices affect the accumulation of specific experience and, thus, the evolution of a worker’s skills and compensation. This paper models an individual’s decision over employment type by estimating a dynamic, stochastic, discrete choice, optimization problem using panel data from Chile. We simulate choices of employment type in the hypothetical scenario of a proposed mandatory universal unemployment insurance structure under different categories of education and experience. We find a slight increase in the number of workers selecting self-employment due to the reform. Consistent with theories of accumulation of specific experience and specialization, we observe stronger movements the lower (higher) the amount of experience workers have in the departing (destination) sectors.

Suggested Citation

  • Cristian Pardo & Jaime Ruiz-Tagle, 2017. "The dynamic role of specific experience in the selection of self-employment versus wage-employment," Oxford Economic Papers, Oxford University Press, vol. 69(1), pages 189-212.
    • Handle: RePEc:oup:oxecpp:v:69:y:2017:i:1:p:189-212.
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    File URL: http://hdl.handle.net/10.1093/oep/gpw047
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    Citations

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    Cited by:

    1. Aleksandra Gawel & Timo Toikko, 2023. "Quality of Governance and Welfare Generosity as Institutional Predictors of Entrepreneurship: European Perspective," SAGE Open, , vol. 13(4), pages 21582440231, October.
    2. Roberts, Gareth & Schöer, Volker, 2021. "Gender-based segregation in education, jobs and earnings in South Africa," World Development Perspectives, Elsevier, vol. 23(C).
    3. Amaral, Ernesto F. L. & Faustino, Samantha Haussmann Rodarte & Gonçalves, Guilherme Quaresma & Queiroz, Bernardo L, 2019. "Economic sector, demographic composition, educational attainment, and earnings in Brazil," OSF Preprints vz4sa, Center for Open Science.

    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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