IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp79.html
   My bibliography  Save this paper

Entrepreneurship from Scratch: Lessons on the Entry Decision into Self-Employment from Transition Economies

Author

Listed:
  • Earle, John S.

    (George Mason University)

  • Sakova, Zuzana

    (affiliation not available)

Abstract

This paper exploits the rapid rise in self-employment rates in post-communist Eastern Europe as a valuable "quasi-experiment" for understanding the sources of entrepreneurship. A relative demand-supply model and an individual sectoral choice model are used to analyze a 1993 survey of 27,000 adults in six transition economies. Estimated self-employment earnings premia are positive, and the data imply positive selection into both employee and self-employment status. Structural probit estimates show the probability of self-employment entry is unassociated with former Communist Party affiliation but positively related to schooling, pre-transition family income, receipt of property in restitution, pre-communist family business-holding, and predicted earnings differential. Cross-country variation in predicted self-employment entry rates and relative earnings provide evidence on the demand and supply factors affecting the decision to become an entrepreneur.

Suggested Citation

  • Earle, John S. & Sakova, Zuzana, 1999. "Entrepreneurship from Scratch: Lessons on the Entry Decision into Self-Employment from Transition Economies," IZA Discussion Papers 79, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp79
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp79.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blanchflower, David G., 2000. "Self-employment in OECD countries," Labour Economics, Elsevier, vol. 7(5), pages 471-505, September.
    2. 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.
    3. 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.
    4. Shiller, Robert J & Boycko, Maxim & Korobov, Vladimir, 1991. "Popular Attitudes toward Free Markets: The Soviet Union and the United States Compared," American Economic Review, American Economic Association, vol. 81(3), pages 385-400, June.
    5. Brainerd, Elizabeth, 1998. "Winners and Losers in Russia's Economic Transition," American Economic Review, American Economic Association, vol. 88(5), pages 1094-1116, December.
    6. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
    7. J Earle & S Estrin & L Leshchenko, 1996. "Ownership Structures," CEP Discussion Papers dp0315, Centre for Economic Performance, LSE.
    8. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1091-1126.
    9. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-358, May.
    10. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc.
    11. Flanagan, Robert J., 1998. "Were communists good human capitalists? The case of the Czech Republic," Labour Economics, Elsevier, vol. 5(3), pages 295-312, September.
    12. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1995. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," NBER Chapters, in: Differences and Changes in Wage Structures, pages 25-66, National Bureau of Economic Research, Inc.
    13. Gill, Andrew M, 1988. "Choice of Employment Status and the Wages of Employees and the Self-employed: Some Further Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(3), pages 229-234, July-Sept.
    14. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
    15. Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-579, August.
    16. Robert J. Shiller & Maxim Boycko & Vladimir Korobov, 1992. "Hunting for Homo Sovieticus: Situational versus Attitudinal Factors in Economic Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 127-194.
    17. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    18. Peter Murrell, 1996. "How Far Has the Transition Progressed?," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 25-44, Spring.
    19. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    20. Borjas, George J & Bronars, Stephen G, 1989. "Consumer Discrimination and Self-employment," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 581-605, June.
    21. David G. Blanchflower & Richard B. Freeman, 1997. "The Attitudinal Legacy of Communist Labor Relations," ILR Review, Cornell University, ILR School, vol. 50(3), pages 438-459, April.
    22. Anders Åslund & Peter Boone & Simon Johnson, 1996. "How to Stabilize: Lessons from Post-communist Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 217-314.
    23. Ham, John C & Svejnar, Jan & Terrell, Katherine, 1998. "Unemployment and the Social Safety Net during Transitions to a Market Economy: Evidence from the Czech and Slovak Republics," American Economic Review, American Economic Association, vol. 88(5), pages 1117-1142, December.
    24. Barberis, Nicholas & Maxim Boycko & Andrei Shleifer & Natalia Tsukanova, 1996. "How Does Privatization Work? Evidence from the Russian Shops," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 764-790, August.
    25. Robert W. Fairlie & Bruce D. Meyer, 1996. "Ethnic and Racial Self-Employment Differences and Possible Explanations," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 757-793.
    26. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-161, April.
    27. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
    28. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    29. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    30. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-1526, November.
    31. Freeman, Richard B. & Katz, Lawrence F. (ed.), 1995. "Differences and Changes in Wage Structures," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226261607, September.
    32. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    33. Daniel S. Hamermesh, 1990. "Shirking or Productive Schmoozing: Wages and the Allocation of Time at Work," ILR Review, Cornell University, ILR School, vol. 43(3), pages 121-1-133-, April.
    34. Victor R. Fuchs, 1982. "Self-Employment and Labor Force Participation of Older Males," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 339-357.
    35. 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 808-827, August.
    36. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    37. A. Richter & M.E. Schaffer, 1996. "The Performance of De Novo Private Firms in Russian Manufacturing," CERT Discussion Papers 9610, Centre for Economic Reform and Transformation, Heriot Watt University.
    38. Tito Boeri, 1994. "“Transitional” unemployment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 1-25, March.
    39. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-433, June.
    40. Thomas Dunn & Douglas Holtz-Eakin, 1996. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc.
    41. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
    42. Earle, John & Estrin, Saul & Leshchenko, Larisa, 1996. "Ownership structures, patterns of control and enterprise behavior in Russia," LSE Research Online Documents on Economics 20642, London School of Economics and Political Science, LSE Library.
    43. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1993. "A Comparison of Changes in the Structure of Wages," NBER Working Papers 4297, National Bureau of Economic Research, Inc.
    44. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1.
    45. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 485-506.
    46. David J. Cooper & Daniel M. Berkowitz, 1997. "Start-ups and Transition," William Davidson Institute Working Papers Series 84, William Davidson Institute at the University of Michigan.
    47. 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.
    48. Jacek Rostowski, 1989. "The decay of socialism and the growth of private enterprise in Poland," Europe-Asia Studies, Taylor & Francis Journals, vol. 41(2), pages 194-214.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Artjoms Ivlevs & Milena Nikolova & Olga Popova, 2021. "Former Communist party membership and present-day entrepreneurship," Small Business Economics, Springer, vol. 57(4), pages 1783-1800, December.
    2. Alessandra Guariglia & Byung‐Yeon Kim, 2006. "The dynamics of moonlighting in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 1-45, March.
    3. John McMillan & Christopher Woodruff, 2002. "The Central Role of Entrepreneurs in Transition Economies," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 153-170, Summer.
    4. Brown, J David & Earle, John S & Lup, Dana, 2005. "What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 33-70, October.
    5. Ira N. Gang & Catherine Y. Co & Myeong-Su Yun, 2002. "Self-Employment and Wage Earning: Hungary During Transition," Departmental Working Papers 200219, Rutgers University, Department of Economics.
    6. J. David Brown & John S. Earle & Dana Lup, 2004. "Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," William Davidson Institute Working Papers Series 2004-639, William Davidson Institute at the University of Michigan.
    7. Justin van der Sluis & Mirjam van Praag & Wim Vijverberg, 2003. "Entrepreneurship Selection and Performance," Tinbergen Institute Discussion Papers 03-046/3, Tinbergen Institute, revised 24 Sep 2004.
    8. Sameeksha Desai, 2009. "Measuring Entrepreneurship in Developing Countries," WIDER Working Paper Series RP2009-10, World Institute for Development Economic Research (UNU-WIDER).
    9. Klara Z. Sabirianova, 2000. "The Great Human Capital Reallocation: An Empirical Analysis of Occupational Mobility in Transitional Russia," William Davidson Institute Working Papers Series 309, William Davidson Institute at the University of Michigan.
    10. Steven Stillman, 2000. "Labor Market Uncertainty and Private Sector Labor Supply in Russia," William Davidson Institute Working Papers Series 359, William Davidson Institute at the University of Michigan.
    11. Tanya Chavdarova, 2014. "Risky Businesses? Young People in Informal Self-Employment in Sofia," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 38(6), pages 2060-2077, November.
    12. Steven Stillman, 2000. "Labor Market Uncertainty and Private Sector Labor Supply in Russia," William Davidson Institute Working Papers Series 359, William Davidson Institute at the University of Michigan.
    13. Brixiova, Zuzana & Li, Wenli & Yousef, Tarik, 2009. "Skill shortages and labor market outcomes in Central Europe," Economic Systems, Elsevier, vol. 33(1), pages 45-59, March.
    14. Scharle, Ágota, 2000. "Önfoglalkoztatás, munkanélküliség és családi kisvállalkozások Magyarországon [Self-employment, unemployment and small family firms in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 250-274.
    15. Daniel Berkowitz & David N. DeJong, 2005. "Entrepreneurship and Post‐socialist Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(1), pages 25-46, February.
    16. Ruslan Yemtsov, 2003. "Quo Vadis? Inequality and Poverty Dynamics across Russian Regions," WIDER Working Paper Series DP2003-67, World Institute for Development Economic Research (UNU-WIDER).
    17. Geraint Johnes & Alexander Kalinoglou & Ayana Manasova, 2005. "Chaos and the Dancing Stars," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 14(1), pages 1-19, March.
    18. World Bank, 2001. "Croatia : Economic Vulnerability and Welfare Study," World Bank Publications - Reports 15698, The World Bank Group.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nadia Simoes & Nuno Crespo & Sandrina B. Moreira, 2016. "Individual Determinants Of Self-Employment Entry: What Do We Really Know?," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 783-806, September.
    2. 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.
    3. Robert W. Fairlie, 2002. "Drug Dealing and Legitimate Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 538-567, July.
    4. Robert W. Fairlie & Bruce D. Meyer, "undated". "Trends in Self-Employment Among White and Black Men: 1910 - 1990," IPR working papers 99-1, Institute for Policy Resarch at Northwestern University.
    5. Robert W. Fairlie & Alicia M. Robb, 2008. "Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States," MIT Press Books, The MIT Press, edition 1, volume 1, number 026206281x, April.
    6. Giuliano Guerra & Roberto Patuelli, 2016. "The Role of Job Satisfaction in Transitions into Self–Employment," Entrepreneurship Theory and Practice, , vol. 40(3), pages 543-571, May.
    7. Blanchflower, David G., 2000. "Self-employment in OECD countries," Labour Economics, Elsevier, vol. 7(5), pages 471-505, September.
    8. Yannis Georgellis & Howard Wall, 2005. "Gender differences in self-employment," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(3), pages 321-342.
    9. Magnus Lofstrom, 2013. "Does self-employment increase the economic well-being of low-skilled workers?," Small Business Economics, Springer, vol. 40(4), pages 933-952, May.
    10. Earle, John S. & Sakova, Zuzana, 2000. "Business start-ups or disguised unemployment? Evidence on the character of self-employment from transition economies," Labour Economics, Elsevier, vol. 7(5), pages 575-601, September.
    11. Y Georgellis & J G Sessions & N Tsitsianis, 2005. "Self-Employment Longitudinal Dynamics: A Review of the Literature," Economic Issues Journal Articles, Economic Issues, vol. 10(2), pages 51-84, September.
    12. Inmaculada Garc�a Mainar & V�ctor M. Montuenga G�mez, 2004. "Returns to education and to experience within the EU: are there differences between wage earners and the self-employed?," Documentos de Trabajo dt2004-08, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    13. José María Millán & Emilio Congregado & Concepción Román, 2010. "Determinants of Self-Employment Dynamics and their Implications on Entrepreneurial Policy Effectiveness," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 72, pages 45-76.
    14. Nathalie Colombier & David Masclet, 2008. "Intergenerational correlation in self employment: some further evidence from French ECHP data," Small Business Economics, Springer, vol. 30(4), pages 423-437, April.
    15. Michael Hout & Harvey Rosen, 2000. "Self-Employment, Family Background, and Race," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 670-692.
    16. Robert W. Fairlie & Alicia M. Robb, 2007. "Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 25(2), pages 289-323.
    17. Ross Levine & Yona Rubinstein, 2017. "Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 963-1018.
    18. Ross Levine & Yona Rubinstein, 2018. "Selection into Entrepreneurship and Self-Employment," NBER Working Papers 25350, National Bureau of Economic Research, Inc.
    19. Ruth Oyelere & Willie Belton, 2013. "Black–White gap in self-employment. Does intra-race heterogeneity exist?," Small Business Economics, Springer, vol. 41(1), pages 25-39, June.
    20. Ekelund, Jesper & Johansson, Edvard & Jarvelin, Marjo-Riitta & Lichtermann, Dirk, 2005. "Self-employment and risk aversion--evidence from psychological test data," Labour Economics, Elsevier, vol. 12(5), pages 649-659, October.

    More about this item

    Keywords

    Entrepreneurship; self-employment; transition; small business; selection bias; structural probit Eastern Europe; Bulgaria; Czech Republic; Hungary; Poland; Russia; Slovakia;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp79. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.