Self-employment and Liquidity Constraints: Evidence from Finland

Using a large Finnish micro data set, I study how wealth influences the decision to become self-employed. The main result is that personal wealth increases the probability of a person becoming self-employed. This suggests the presence of liquidity constraints.
JEL classification: J 23; M 13     

Entrepreneurship, windfall gains and financial constraints: Evidence from Germany

We investigate the link between the propensity to become an entrepreneur and the exogenous release from financial constraints in Germany. This is defined in terms of the movement from employment to self-employment on receipt of a financial windfall. A theoretical framework developing Evans and Jovanovic (1989) is set up and tested with panel data from German households. The results show that financial constraints do exist given that individuals are more likely to start a personal business after receiving a windfall gain. The value of windfall gains has a significant but non linear effect on the decision to become self employed. The data reveal that differences in ability and income affect the change in employment status. We also report that there is no evidence that becoming self-employed involves the anticipation of windfall gains.     

The Gender Wage Gap in Paid- and Self-Employment in Australia

This paper presents an analysis of the gender wage gap in the highly regulated Australian labour market. It compares wage outcomes in the wage and salary sector with those for the self-employed. Comparisons with the United States are provided. The large gender pay gap in self-employment suggests that the aggregate gender wage differential will not be eliminated solely through wage determination for wage and salary earners. The greater gender wage gap in the self-employed sector may reflect liquidity constraints that are more difficult for self-employed women to overcome relative to self-employed men. The comparisons with the United States suggest that women will experience deterioration in relative earnings as the Australian labour market is deregulated.     

Occupational choice, incentives and wealth distribution

We consider a model of occupational choice in large economies where individuals differ in their wealth endowment. Individuals can remain self-employed or engage in productive matches with another individual, i.e., form firms. Matches are subject to a moral hazard problem with limited liability. The division of the gains from such matches is determined by competitive forces. When the incentive problem is asymmetric, matches are typically wealth-heterogeneous, with richer individuals choosing the occupation for which incentives are more important. The utilities attained within a match depend on the wealth distribution and changes in the latter give rise to ‘trickle down’ effects.     

JOB SEARCH AND ASSET ACCUMULATION UNDER BORROWING CONSTRAINTS*

This article examines the relationship between wealth accumulation and job search dynamics. It proposes a model in which risk‐averse individuals search for jobs, save, and borrow to smooth their consumption. One motivation for accumulating wealth is to finance voluntary quits in order to search for better jobs. Using data on men from the National Longitudinal Survey (1979 cohort), I estimate the individual's dynamic decision problem. The results show that borrowing constraints are tight and reinforce the influence of wealth on job acceptance decisions, namely that more initial wealth and access to larger amounts of credit increase wages and unemployment duration.     

Age-specific entrepreneurship and PAYG: Public pensions in Germany

We present new empirical evidence on the distribution of earnings, income and wealth among entrepreneurs in Germany. We document that both earnings and income are more concentrated among entrepreneurs than among workers and describe a large-scale overlapping-generations model that replicates the age-earnings profiles of these two household types. As an application, we compute the equilibrium effects of a reform of the German pay-as-you-go pension system in which entrepreneurs must also contribute and receive a pension. We show that in the presence of mobility between workers and entrepreneurs, the expected lifetime utility of all newborn households unanimously declines due to the general equilibrium effects of lower aggregate savings, and welfare losses amount to approximately 0.7% of total consumption. In addition, the integration of self-employed workers into the social security system in Germany does not help to improve its fiscal sustainability, and only an increase in the retirement age to 70 years will help to finance pensions at the present level beyond the year 2050.     

Precautionary savings of agents with heterogeneous risk aversion

This article focuses on the estimation of the importance of the precautionary motive in the wealth accumulation decision. We use the micro data set of the De Nederlandsche Bank (DNB) Household Survey (DHS) (CentERdata, Tilburg University), a Dutch household survey containing information on wealth, a subjective measure of income uncertainty and subjective qualitative measures of risk aversion. We find that only a small share of wealth is accumulated for the precautionary motive by the Dutch households. This share of wealth is constant across assets with different degrees of liquidity. The economic downturn of the period 2008 to 2010 seems to affect risk attitudes and precautionary saving. Our findings also suggest that the more risk-averse individuals are those who hold less savings.     

Do dropouts drop out too soon? Wealth,health and happiness from compulsory schooling

This paper uses compulsory schooling laws to evaluate high school dropout decisions. The main empirical result is that lifetime wealth increases by about 15% with an extra year of compulsory schooling. Students compelled to stay in school are also less likely to report being in poor health, unemployed, and unhappy. The main conclusion is that high school aversion alone is unlikely to explain why dropouts forgo substantial gains to lifetime wealth. The results are more consistent with the possibility that adolescents ignore or heavily discount future consequences when deciding to drop out of school. If teenagers are myopic, making school compulsory or offering incentives to stay in school may help improve lifetime outcomes.     

On estimating earnings functions for LDCs

A technique is developed for estimating earnings functions from data in which both wage-earners and self-employed persons are included; it is argued that the return to schooling is overestimated if only wage-earners are in the sample. A procedure for simultaneously imputing labor incomes to the self-employed is also developed and carried out with 1971 data for Bangkok, Thailand. The evidence suggests that ceteris paribus the self-employed have labor earnings at least as high as their wage-earning counterparts.     

The Living Standards of the Low Income Self-Employed

Poverty and inequality measurement in Australia has typically excluded the self-employed because of concerns about a weak relationship between their measured incomes and their standard of living. At the same time, however, families containing self-employed individuals receive substantial income support. Is this support well targeted? This paper compares the living standards of low income self-employed and employee families using data from the ABS 1993–94 Household Expenditure Survey. The use of expenditure data for the measurement of living standards poses particular methodological problems, for which some new solutions are proposed. The paper concludes that the average living standards of low income self-employed families and of self-employed families receiving additional family payments are higher than those of comparable employee families. On the other hand, a greater proportion of self-employed families have low consumption levels.     

Funding self-employment – the role of consumer credit

This article investigates whether self-employed households use consumer loans – in particular, instalment loans and overdrafts – to finance business activities. Controlling for financial and nonfinancial household variables, we show that self-employed households particularly use personal overdrafts significantly more often than employee households. When analysing the correlation between consumer loan take-ups and consumption of self-employed in comparison to employee households, we find first evidence that overdrafts are used by self-employed to finance their business as well. This indicates that intermingling constitutes a financing strategy when regular business loans might not be accessible.     

Competition and the cost of health care

Previous studies of the underreporting of income for tax purposes have used private employees as the benchmark to which other groups’ compliance was measured. In this paper it is suggested that there are a number of circumstances when there will be an incentive for private employees and their employers to collude to understate employee wages and salaries for purposes of taxation. The existence of high marginal tax rates of income tax combined with high social security payroll taxes are the typical conditions that stimulate this behaviour. These conditions are present in North Cyprus. This paper examines a rich source of household consumption expenditure and income data for North Cyprus that allows one to separate out the consumption expenditures made by the self-employed, private employees and civil servants over specific periods of time. From the comparison of consumption expenditures on food by these three groups it is possible to estimate how much self-employed and the private employees understated their incomes as compared to the civil servants. It is found that in North Cyprus private employees understate their incomes by approximately the same proportion of their incomes as do the self-employed.     

住房保障与财富效应逆转——基于平滑转换回归方法的实证分析

本文采取非线性的平滑转换回归方法,对我国保障房供给影响财富效应的程度进行了研究,结果表明:保障房的供给会使得房地产价格的财富效应发生V型逆转,即当保障房供给处于低水平阶段时,房地产价格的财富效应为负向,房价上涨会抑制消费增加;当保障房供给处于高水平阶段时,房地产价格具有正向的财富效应,房价上涨促进消费增加。这说明存在一个保障房供给的最低门槛,只有跨越这个门槛,才能有利于发挥房地产价格的财富效应,进而促进消费。从对全国各省份的数据分析发现,西部地区的大部分省份已经跨越了保障房供给的最低门槛,而东部地区较多的省份,连续几年都低于这个门槛值。因此,应积极建立健全保障性安居工程的融资机制,合理协调好保障房与商品房用地之间的关系,进而促进消费。     

Life satisfaction and self-employment in different types of occupations

In this research, we investigate whether a positive relationship between life satisfaction and self-employment (versus paid employment) exists while simultaneously considering two occupational dimensions: white-collar versus blue-collar work and high-skilled versus low-skilled work. Using Eurobarometer data for a large number of European countries (2008–2012), our findings confirm that self-employed workers are more satisfied with their lives than paid employees are. A life satisfaction premium is also found when the self-employed and paid employees are compared within similar occupations in terms of collar type and skill level. Finally, self-employment can help to overcome low life satisfaction scores associated with blue-collar and low-skilled work.     

The role of gender and its potential channels to affect self-employment in Taiwan

This research investigates the gender differences in the self-employment sector by employing a dynamic panel model with county- and city-level data from 1998 to 2016 in Taiwan. Our study is distinct from most others in this issue in that we explore not only the inter-gender difference, but also the intra-gender differences in self-employment. Following this framework, we first find that women are on average less likely to self-employ than men, and further find that older men, married men, men living in lower income regions and women living in higher income regions are more likely to become self-employed compared to their respective reference groups. We thus argue that gender influences self-employment not only directly but also through interactions with other demographic variables. Separate evaluation of different groups based on demographics should therefore result in better targeting of policies.     

中国城镇家庭财产水平研究:基于行为的视角

本文首先提出了一个各种因素影响家庭财产水平的理论框架。然后通过对奥尔多投资研究中心2007年"城市投资者行为调查问卷"数据的处理和实证分析,估算了中国城镇居民的财产函数,重点考察了户主的主观行为特征在财产积累过程中的重要作用。本文发现:户主投资参与度与风险偏好度的提高有利于家庭财产水平的增加;与低收入或者经济相对落后地区的家庭相比,对高收入或者经济发达地区的家庭来说,投资参与度与风险偏好度对家庭财产水平的积极影响更显著一些。最后,针对政府如何促进居民财产水平的提升,本文给出了相关的政策建议。     

Social Mobility: The Barro–Becker Children Meet the Laitner–Loury Dynasties

I compare the predictions of two types of dynastic models for the persistence of wealth across generations: models that focus on uninsurable risk and intergenerational consumption smoothing but abstract from the fertility decision, such as Loury and Laitner, and models without risk that focus on the fertility decision, such as Becker and Barro. I show that when both uninsurable risk and fertility decisions are present, a striking result obtains: wealthier parents have more children, but the transfer to each child is independent of wealth. Since this result is counterfactual, I also discuss extensions that can resurrect persistence.Journal of Economic LiteratureClassification Numbers: C61, D31, D1, J13     

社会财富及其源泉--使用价值形成论

在现代发达市场经济和高技术的生产过程中，呈现出生产要素的多维化：除了劳动力、工具力，对象力，科学力而外，管理力，环境力等成为生产过程的有效因素，并且对产品使用价值和社会形成发挥重要作用，从而表现出生产方式进步中社会财富新泉源到开发和富源的多样化。主要依托科学力（知识力）创造财富是人类进行财富创新的最高形式，也是财富创造效率最高的方式，在使用价值形成中非劳动要素作用和贡献的增大和活劳动的作用，功能的减缩，并不意味着劳动创造价值命题的失效，劳动是财富生产的原动力，是要素力的启动力，是多要素有机结合的粘合力。     

YOUNG BABY BOOMERS' WEALTH

Researchers know relatively little about the beginnings of wealth accumulation. This paper analyzes the wealth of young baby boomers, individuals born from 1957 to 1964, using a previously ignored wealth data set, the National Longitudinal Survey of Youth 1979 (NLSY79). First, a detailed data quality evaluation is performed. Findings suggest that not cleaning NLSY79 wealth data causes nonsensical results, but there are no other serious problems. Analyzing the cleaned wealth data quantifies many stylized facts. For example, the typical baby boomer's wealth holdings increase by more than $2,000 a year. Married females hold more wealth than either married or unmarried males. Finally, while young boomers start with a majority of their wealth in illiquid holdings such as automobiles and possessions, they rapidly shift their wealth holdings into homes as they grow older.     

The Gender Wealth Gap in Europe: Application of Machine Learning to Predict Individual-level Wealth

This article provides comparative estimates of the gender wealth gaps for 22 European countries, employing data from the Household Finance and Consumption Survey. The data on wealth are collected at the household level, while individual-level data are needed for the estimates of gender wealth gaps. We propose a novel approach using machine learning and model averaging methods to predict individual-level wealth data for multi-person households. Our results suggest that random forest performs best as the predicting tool for this exercise, outperforming elastic net and Bayesian model averaging. The estimated gender wealth gaps tend to be in favor of men, especially at the top of the wealth distribution. Men have 24 percent more wealth than women on average. We also find that a high home ownership rate is associated with a smaller country-level gender wealth gap. Our estimates suggest that the individual-level wealth inequality is on average 3 pp higher than the household-level wealth inequality in multi-member households.