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Entrepreneurial Ventures and Wage Differentials Between Germans and Immigrants

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  • Constant, Amelie F.

    () (Temple University)

  • Shachmurove, Yochanan

    () (City College of New York)

Abstract

This paper focuses on the entrepreneurial undertaking of immigrants and natives in Germany. We first study factors that affect the sorting of individuals into self-employment and then we investigate whether self-employment has a differential effect on the wages of individual workers and can lead them to economic success. We employ recent data from the German Socioeconomic Panel that allow us to identify and compare four distinct groups: West Germans, East Germans, guestworkers, and ethnic Germans. We find that the probability of self-employment increases significantly with age for all groups. For immigrants, the years-since-migration exhibits a U-shape. During the first years since migration the likelihood of self-employment decreases over time. However, when immigrants have accumulated more years of residence in Germany, the likelihood is increasing again. This suggests that once immigrants have overcome the initial adjustment shock, self-employment is a means to take advantage of the opportunities of the host country and achieve a higher socio-economic standing. Among immigrants, guestworkers are twice as likely to choose self-employment as ethnic Germans. Further, we find that self-employment is a lucrative choice only for Germans who are in the upper end of the income distribution. “Rich” self-employed Germans enjoy a wage premium compared to their salaried counterparts. However, immigrants are able to traverse the socioeconomic gap through self-employment, irrespective of the part of the distribution they are at. Self-employed immigrants earn 22% more than the salaried immigrants.

Suggested Citation

  • Constant, Amelie F. & Shachmurove, Yochanan, 2003. "Entrepreneurial Ventures and Wage Differentials Between Germans and Immigrants," IZA Discussion Papers 879, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp879
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    References listed on IDEAS

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    1. Robert W. Fairlie & Bruce D. Meyer, 2003. "The Effect of Immigration on Native Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 619-650, July.
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    Citations

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    Cited by:

    1. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
    2. Amelie F. Constant, 2009. "Businesswomen in Germany and their performance by ethnicity: It pays to be self-employed," International Journal of Manpower, Emerald Group Publishing, vol. 30(1/2), pages 145-162, March.
    3. Yochanan Shachmurove, 2007. "Geography and Industry Meets Venture Capital," PIER Working Paper Archive 07-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    4. Yochanan Shachmurove, 2006. "An Excursion into the Venture Capital Industry Stratified by Locations and Industries 1996-2005," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 11(3), pages 79-104, Fall.
    5. Lechmann, Daniel S. J., 2013. "Can working conditions explain the return-to-entrepreneurship puzzle?," Discussion Papers 86, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    6. Yochanan Shachmurove, 2009. "Economic Geography, Venture Capital and Focal Points of Entrepreneurial Activity," PIER Working Paper Archive 09-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    7. Constant, Amelie F., 2004. "Immigrant versus Native Businesswomen: Proclivity and Performance," IZA Discussion Papers 1234, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    immigrants; entrepreneurship; self-employment; occupational choice; wage differentials;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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