Self-employment and queues for wage work: evidence from Chile

Self-employment can be considered as either the result of a self-selection process or a reflection of rigidities and skill mismatch in the labour market or both. We estimate a double selection model where individuals queue for wage work instead of being self-employed in the first stage, followed by employers selecting from the queue in the second. We find statistical support for the double selection model, implying that some individuals are self-employed because they cannot find wage work, while other self-select to be self-employed. Individuals with higher education are more often chosen as wage workers, and belonging to an ethnic group decreases the likelihood of being chosen. Additionally, earnings equations suggest that high ability individuals perform better in both the wage work and self-employment sectors.

http://onlinelibrary.wiley.com/doi/10.1002/jid.3074/abstract