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Wage Uncertainty and the Labour Supply of Self-Employed Workers

  • Simon C. Parker
  • Yacine Belghitar
  • Tim Barmby

We analyse the effects of wage uncertainty on the labour supply of self-employed workers, using PSID data on self-employed American males. The standard deviation of past wages, as a measure of wage uncertainty, is the key determinant of male self-employed labour supply, with a significant positive effect. In contrast there is no effect from the (instrumented) wage or other explanatory variables. Our findings are consistent with the self-employed 'self-insuring' in response to greater uncertainty by working longer hours, and they can also help explain why self-employed Americans work longer average hours for lower average wages than their employee counterparts. Copyright 2005 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 115 (2005)
Issue (Month): 502 (03)
Pages: C190-C207

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Handle: RePEc:ecj:econjl:v:115:y:2005:i:502:p:c190-c207
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