Business start-ups or disguised unemployment? Evidence on the character of self-employment from transition economies

Abstract

We study the character of self-employment, drawing upon household survey evidence from six transition economies. Multinomial-logit analysis distinguishing employers from own-account self-employed and comparing both groups to employees and unemployed finds that own-account status is intermediate in most characteristics; tests reject the pooling of any of these categories. Selectivity-bias-corrected earnings premia are large for employers and smaller for own-account. A structural polychotomous model shows that employers respond strongly to predicted earnings premia in all countries, while the own-account response is estimated to be negative, supporting the interpretation that individuals may be pushed into own-account status by lack of work opportunities.