Abstract
Summary This paper analyzes heterogeneity among the self-employed in 74 developing countries, representing two-thirds of the population of the developing world. After profiling how worker characteristics vary by employment status, it classifies self-employed workers outside agriculture as “successful” or “unsuccessful” entrepreneurs, based on two measures of success: whether the worker is an employer, and whether the worker resides in a non-poor household. Four main findings emerge. First, jobs exhibit a clear pecking order, with household income and worker education highest for employers, followed by wage and salaried employees, non-agricultural own-account workers, non-agricultural unpaid family workers, and finally agricultural workers. Second, a substantial minority of own-account workers reside in non-poor households, suggesting that their profits are often a secondary source of household income. Third, as per capita income increases across countries, the structure of employment shifts rapidly, first out of agriculture into unsuccessful non-agricultural self-employment, and then mainly into non-agricultural wage employment. Finally, roughly one-third of the unsuccessful entrepreneurs share similar characteristics with their successful counterparts, suggesting they have the potential to be successful but face constraints to growth. The authors conclude that although interventions such as access to credit can benefit a substantial portion of the self-employed, effectively targeting the minority of self-employed with higher growth potential is important, particularly in low-income contexts. The results also highlight the potential benefits of policies that facilitate shifts in the nature of work, first from agricultural labor into non-agricultural self-employment, and then into wage and salaried jobs.
Highlights
Most workers in developing counties are self-employed, relatively little is known at a broader level about their characteristics and prospects, and how types of employment evolve as economic development occurs
Employers and own-account workers are classified as successful or unsuccessful, based on two coarse measures of entrepreneurial success that are present in the data: (i) whether the self-employed are employers and (ii) whether the worker lives in a household with per capita consumption above the $2/day poverty line
If a high proportion of workers are unsuccessful self-employed with little potential to become innovative and successful, policies to promote entrepreneurship, such as microlending or extension services, may be more effective if they are targeted to the narrow set of entrepreneurs with greater potential
Summary
Most workers in developing counties are self-employed, relatively little is known at a broader level about their characteristics and prospects, and how types of employment evolve as economic development occurs. Employers and own-account workers are classified as successful or unsuccessful, based on two coarse measures of entrepreneurial success that are present in the data: (i) whether the self-employed are employers (vs own account workers) and (ii) whether the worker lives in a household with per capita consumption above the $2/day poverty line. Throughout the analysis, we are concerned with how the characteristics of the selfemployed change as countries develop We examine this issue by comparing the profile of the self-employed in countries at different levels of per capita GDP. If a high proportion of workers are unsuccessful self-employed with little potential to become innovative and successful, policies to promote entrepreneurship, such as microlending or extension services, may be more effective if they are targeted to the narrow set of entrepreneurs with greater potential. There has been research investigating the heterogeneity of the self-employed in several countries (i.e. Djankov, Qian, Roland and Zhuravskaya, 2005 and 2006; de Mel, McKenzie and Woodruff, 2010; Grimm, Knorringa and Lay (2011), this is to our knowledge the first analysis that takes a more global perspective on the nature of selfemployment across a wide set of middle and low income countries
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