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Predicted earnings and the propensity for self-employment: Evidence from Sweden


  • Mats Hammarstedt


Purpose - The purpose of this paper is to investigate the influence of the predicted earnings differential between self-employment and wage-employment on self-employment propensities in Sweden using a large data set from the year 2003. Design/methodology/approach - The analysis in the paper is based on the presumption that the individual chooses to work in either the self-employed or the wage-employed sector. The separate earnings functions for the self-employed and the wage-employed are estimated in order to predict an individual's earnings in each sector. In order to overcome selectivity problems a Heckman approach is used at this stage. Finally, a structural probit model, where the difference in predicted earnings from the two sectors is included as an independent variable, is estimated. Findings - The main result is that the predicted differential between self-employment and wage-employment earnings plays an important role for the self-employment decision and that an increase in this earnings differential will lead to a higher self-employment rate and to an increase in total employment in Sweden. Originality/value - The policy relevance of this question is evident since previous research has shown that self-employed individuals do not only create jobs for themselves but also for others. Thus, an increase in the earnings from self-employment relative to the earnings from wage-employment will increase the self-employment rate as well as total employment.

Suggested Citation

  • Mats Hammarstedt, 2009. "Predicted earnings and the propensity for self-employment: Evidence from Sweden," International Journal of Manpower, Emerald Group Publishing, vol. 30(4), pages 349-359, July.
  • Handle: RePEc:eme:ijmpps:v:30:y:2009:i:4:p:349-359

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    References listed on IDEAS

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    Cited by:

    1. Altin Vejsiu, 2011. "Incentives to self-employment decision in Sweden," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(4), pages 379-403.
    2. Alina Sorgner & Michael Fritsch & Alexander Kritikos, 2017. "Do entrepreneurs really earn less?," Small Business Economics, Springer, vol. 49(2), pages 251-272, August.
    3. Kent Eliasson & Hans Westlund, 2013. "Attributes influencing self-employment propensity in urban and rural Sweden," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(2), pages 479-514, April.
    4. Johannes Martin, 2013. "The Impact on Earnings When Entering Self-Employment: Evidence for Germany," SOEPpapers on Multidisciplinary Panel Data Research 537, DIW Berlin, The German Socio-Economic Panel (SOEP).
    5. Lina Andersson, 2011. "Occupational choice and returns to self-employment among immigrants," International Journal of Manpower, Emerald Group Publishing, vol. 32(8), pages 900-922, November.

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    Earnings; Self employed workers; Employees; Sweden;


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