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Earnings Growth among Young Less-Educated Business Owners

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Author Info
Robert W. Fairlie
Abstract

Academicians and policymakers have argued that self-employment provides a route out of poverty and an alternative to unemployment or discrimination in the labor market. Existing research, however, provides little evidence from longitudinal data on the relationship between business ownership and economic advancement for disadvantaged groups. I use data from the National Longitudinal Survey (NLSY) to examine the earnings patterns of young less-educated business owners and make comparisons to young less-educated wage/salary workers. Using fixed-effects earnings regressions, I find that the self-employed experience faster earnings growth on average than wage/salary workers after a few initial years of slower growth. Simulations based on these estimates indicate that earnings grow by $771 and $1157 more per year for self-employed men and women, respectively, than for their wage/salary counterparts. I also find that a relatively high percentage of less-educated business owners, especially men, experience either rapid earnings growth or large annual losses. For example, 19 percent of self-employed men experience earnings growth of more than $3,000 per year and 16 percent experience losses of $3,000 or more per year. In contrast, only 14 percent of male wage/salary workers experience levels of earnings growth that fall in this range.

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Paper provided by Northwestern University/University of Chicago Joint Center for Poverty Research in its series JCPR Working Papers with number 207.

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Date of creation: 03 Oct 2000
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Handle: RePEc:wop:jopovw:207

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  1. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September. [Downloadable!] (restricted)
  2. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," NBER Working Papers 1942, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. David Blanchflower & A Oswald, 1993. "Entrepreneurship," CEP Discussion Papers dp0134, Centre for Economic Performance, LSE.
  4. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," NBER Working Papers 4526, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
  6. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November. [Downloadable!] (restricted)
  7. Samuel Myers, 1989. "Nea presidential address: Political economy, race, and morals," The Review of Black Political Economy, Springer, vol. 18(1), pages 5-15, June. [Downloadable!] (restricted)
  8. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier. [Downloadable!] (restricted)
  10. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February. [Downloadable!] (restricted)
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  11. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
  12. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January. [Downloadable!] (restricted)
  13. Timothy Bates, 1989. "The changing nature of minority business: A comparative analysis of asian, nonminority, and black-owned businesses," The Review of Black Political Economy, Springer, vol. 18(2), pages 25-42, September. [Downloadable!] (restricted)
  14. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January. [Downloadable!] (restricted)
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