Abstract
This study incorporates occupational choice into a model of wage determination in wage and self-employed activities. The self-selection model emphasizes managerial ability and capital market imperfections in determining whether an individual chooses between wage and self-employment. Using Heckman's correction for sample selection bias, the results show no bias in the OLS estimates but find that the two groups have different earnings structure. The results for employees confirm the robustness of the human capital model but the model explains only a small fraction of the variation of self-employed earnings.
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