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Logit analysis in a rotating panel context and an application to self-employment decisions

  • Gonzalez, Patricio Aroca
  • Maloney, William F.

The authors derive a methodology for analyzing logit models in a rotating panel context. They then apply the technique to test two theories of why and when salaried workers enter the informal self-employed sector. In the traditional view, workers fired from formal jobs queue in the informal sector to reenter the formal sector. The authors argue that for many, self-employment is a desirable goal, but that credit constraints often dictate that they work in the formal sector until enough start-up capital is accumulated. They model the decision to move as a stopped Markov process in which, in each period, the worker compare accumulated savings with the target level for switching sector dictated by the forecasted stream of discounted utility arising from employment labor and capital in each sector. They test and find support for the model using the new logit methodology and rotating panel data from Mexico.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2069.

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Date of creation: 28 Feb 1999
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Handle: RePEc:wbk:wbrwps:2069
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  1. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  2. Nijman, T.E. & Verbeek, M.J.C.M. & van Soest, A.H.O., 1991. "The efficiency of rotating panel designs in an analysis of variance model," Other publications TiSEM 9cbb61cc-762f-4ab2-84f6-5, Tilburg University, School of Economics and Management.
  3. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  4. 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 808-27, August.
  5. Biorn, Erik & Jansen, Eilev S, 1983. " Individual Effects in a System of Demand Functions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(4), pages 461-83.
  6. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
  7. repec:ner:tilbur:urn:nbn:nl:ui:12-153279 is not listed on IDEAS
  8. Baltagi, Badi H., 1985. "Pooling cross-sections with unequal time-series lengths," Economics Letters, Elsevier, vol. 18(2-3), pages 133-136.
  9. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-120, December.
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