Job Flexibility and Occupational Selection in Ghana: An Application of Maximum Simulated Likelihood

In many African labour markets, the vast majority of self-employed workers are female. It is often hypothesised that self-employment enables workers to balance income-generation with caring for children and other domestic tasks and, since responsibility for these activities is divided unequally in the household, this effect is stronger for women than men. However, testing whether ‘job flexibility’ matters is difficult because variables that proxy for domestic obligations—such as the number of dependents in the household—may be endogenous to occupational choice. In this paper, we build a new estimator using maximum simulated likelihood that allows us to use selection on observables as a guide to selection on unobservables within the multinomial choice problem individuals face when deciding their occupation. We apply this approach to detailed cross-sectional data from Ghana. Our results show that having extra dependents in the household pushes women towards own account self-employment substantially more than men, even under more conservative assumptions about the extent of endogeneity.