Entrepreneurial ventures and wage differentials between Germans and immigrants

Purpose - This paper studies the entrepreneurial undertaking and economic success of immigrants and natives in Germany, namely the West Germans, the East Germans, the guestworkers, and other immigrants. Design/methodology/approach - The paper studies factors that affect the sorting of individuals into self‐employment and investigate whether the self‐employed fare better than the paid‐employed, and whether self‐employed immigrants fare better than Germans. Employing data from the German Socioeconomic Panel both the probability to choose self‐employment through a probit and the selection adjusted earnings are estimated. Findings - The paper finds that the probability of self‐employment increases significantly with age for all ethnicity groups. More education and a self‐employed father propel self‐employment choices for West Germans only. Immigrants are rather pushed into self‐employment to avoid unemployment; however, they are able to traverse the socioeconomic gap through self‐employment. Except for the East Germans, the self‐employed earn more than their salaried counterparts, and immigrants fare the best, having the highest earnings of all groups. For immigrants, entrepreneurship maybe a way of “making” it in the new country. While self‐employment is a lucrative choice for immigrants, their rates remain low. Originality/value - This study produces new empirical evidence on the importance of the self‐employment sector in Germany, where individuals fare well and where immigrants can achieve earnings over‐assimilation compared to natives and higher occupational prestige.