The Native-Immigrant Income Gap among the Self-Employed in Sweden

Abstract

During recent years we have observed that non-western immigrants are overrepresented among the self-employed in Sweden. A reason for this might be the difficulties faced by immigrants in the labour market. The unemployment rate among non-western immigrants in Sweden is higher than among natives with similar human capital characteristics. While this is a well-established result, we do not know much about how self-employed immigrants perform economically compared to their native counterparts. The purpose of this paper is to describe and analyse the incomes of self-employed immigrants and natives in Sweden. We will also discuss possible explanations for the income gap we find. We use Swedish register data for the period 1998 to 2002 and the population studied consists of individuals who have been continuously self-employed during this period. By performing the analysis on this group of self-employed we get a measure of the difference among the long-term self-employed. The outcome of interest is the average income over the period. Income regressions are estimated using both OLS and quantile regressions. We find that self-employed immigrants receive significantly lower incomes than their native counterparts when controlling for individual characteristics, industry and start-up year of the firm. The income gap is larger for non-western immigrants than for western immigrants. Quantile regressions show that the native-immigrant income gap is smaller at the top than at the bottom of the income distribution. Several possible explanations for the native-immigrant income gap are discussed. One possible explanation is that immigrants have a lower reservation wage and accepts staying in business receiving a lower income than comparable natives. Another explanation might be that there is discrimination against self-employed immigrants that will lead to lower incomes. There can be consumer discrimination or discrimination from banks and real estate owners.