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

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Author Info

  • Andersson Joona, Pernilla

    ()
    (SOFI, Stockholm University)

  • Wadensjö, Eskil

    ()
    (Stockholm University)

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.

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File URL: http://ftp.iza.org/dp1971.pdf
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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1971.

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Length: 38 pages
Date of creation: Feb 2006
Date of revision:
Publication status: published online as 'The Best and the Brightest or the Least Successful? Self-Employment Entry among Male Wage-Earners in Sweden' in: Small Business Economics, 2011, [Online First]
Handle: RePEc:iza:izadps:dp1971

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Related research

Keywords: labour income; occupational mobility; occupational choice; self-employment; wages;

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References

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  1. Yannis Georgellis & Howard J. Wall, 2004. "Gender differences in self-employment," Working Papers 1999-008, Federal Reserve Bank of St. Louis.
  2. Edvard Johansson, 2000. "Self-employment and the predicted earnings differential - evidence from Finland," Finnish Economic Papers, Finnish Economic Association, vol. 13(1), pages 45-55, Spring.
  3. Taylor, Mark P, 1996. "Earnings, Independence or Unemployment: Why Become Self-Employed?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 253-66, May.
  4. Parker,Simon C., 2006. "The Economics of Self-Employment and Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521030632, November.
  5. Amelie Constant & Klaus Zimmermann, 2006. "The Making of Entrepreneurs in Germany: Are Native Men and Immigrants Alike?," Small Business Economics, Springer, vol. 26(3), pages 279-300, 04.
  6. Clark, Kenneth & Drinkwater, Stephen, 2000. "Pushed out or pulled in? Self-employment among ethnic minorities in England and Wales," Labour Economics, Elsevier, vol. 7(5), pages 603-628, September.
  7. David G. Blanchflower, 2004. "Self-Employment: More may not be better," NBER Working Papers 10286, National Bureau of Economic Research, Inc.
  8. Martinez-Granado, Maite, 2002. "Self-Employment and Labour Market Transitions: A Multiple State Model," CEPR Discussion Papers 3661, C.E.P.R. Discussion Papers.
  9. Michael Hout & Harvey S. Rosen, 1999. "Self-Employment, Family Background, and Race," NBER Working Papers 7344, National Bureau of Economic Research, Inc.
  10. David B. Audretsch & Roy Thurik & Andre van Stel & M.A. Carree, 2006. "Does Self-Employment Reduce Unemployment?," Papers on Entrepreneurship, Growth and Public Policy 2005-07, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  11. Andersson Joona, Pernilla & Wadensjö, Eskil, 2004. "Self-Employed Immigrants in Denmark and Sweden: A Way to Economic Self-Reliance?," IZA Discussion Papers 1130, Institute for the Study of Labor (IZA).
  12. Mats Hammarstedt, 2006. "The predicted earnings differential and immigrant self-employment in Sweden," Applied Economics, Taylor & Francis Journals, vol. 38(6), pages 619-630.
  13. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
  14. Dolton, Peter J & Makepeace, G H, 1990. "Self Employment among Graduates," Bulletin of Economic Research, Wiley Blackwell, vol. 42(1), pages 35-53, January.
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Cited by:
  1. Andersson Joona, Pernilla & Wadensjö, Eskil, 2008. "A Gender Perspective on Self-Employment Entry and Performance as Self-Employed," IZA Discussion Papers 3581, Institute for the Study of Labor (IZA).

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