Advertisement

Self-employment as a source of income inequality

  • Stefan SchneckEmail author
Regular Article
  • 19 Downloads

Abstract

It is well known that the self-employed are over-represented at the bottom as well as the top of the income distribution. This paper shifts the focus from the income situation of the self-employed to the distributive effects of a change in self-employment rates. With representative German data and unconditional quantile regression analysis we show that an increase in the proportion of self-employed individuals in the labor force increases income polarization by tearing down floors at the bottom and allowing higher income potentials at the very top of the hourly income distribution. Recentered influence function regression of inequality measures corroborate that self-employment is a source of income inequality in the labor market.

Keywords

Income distribution Income inequality Income polarization Self-employment 

JEL Classification

D31 L26 

Notes

Acknowledgements

I have benefited from comments by Olaf Hübler, Daniel Lechmann, Wim Naudé, Konrad Schäfer, and participants at the 28th EBES conference in Coventry.

References

  1. Aghion, P., Akcigit, U., Bergeaud, A., Blundell, R., & Hemous, D. (2019). Innovation and top income inequality. The Review of Economic Studies, 86(1), 1–45.CrossRefGoogle Scholar
  2. Alejo, J., Gabrielli, M. F., & Sosa-Escudero, W. (2014). The distributive effects of education: An unconditional quantile regression approach. Revista de Analisis Economico - Economic Analysis Review, 29(1), 53–76.Google Scholar
  3. Astebro, T., & Chen, J. (2014). The entrepreneurial earnings puzzle: Mismeasurement or real? Journal of Business Venturing, 29(1), 88–105.CrossRefGoogle Scholar
  4. Astebro, T., Chen, J., & Thompson, P. (2011). Stars and misfits: Self-employment and labor market frictions. Management Science, 57(11), 1999–2017.CrossRefGoogle Scholar
  5. Atems, B., & Shand, G. (2018). An empirical analysis of the relationship between entrepreneurship and income inequality. Small Business Economics, 51(4), 905–922.CrossRefGoogle Scholar
  6. Blanchflower, D. G., & Oswald, A. J. (1998). What makes an entrepreneur? Journal of Labor Economics, 16(1), 26–60.CrossRefGoogle Scholar
  7. Borah, B. J., & Basu, A. (2013). Highlighting differences between conditional and unconditional quantile regression approaches through an application to assess medication adherence. Health Economics, 22(9), 1052–1070.CrossRefGoogle Scholar
  8. Brenke, K. (2013). Allein tätige Selbständige: Starkes Beschäftigungswachstum, oft nur geringe Einkommen. DIW Wochenbericht, 80(7), 3–16.Google Scholar
  9. Caliendo, M., Hogenacker, J., Künn, S., & Wießner, F. (2012). Alte Idee, neues Programm: Der Gründungszuschuss als Nachfolger von Überbrückungsgeld und Ich-AG. Journal for Labour Market Research, 45(2), 99–123.CrossRefGoogle Scholar
  10. Choe, C., & Van Kerm, P. (2018). Foreign workers and the wage distribution: What does the influence function reveal? Econometrics, 6(3), 1–26.CrossRefGoogle Scholar
  11. Cowell, F. A., & Van Kerm, P. (2015). Wealth inequality: A survey. Journal of Economic Surveys, 29(4), 671–710.CrossRefGoogle Scholar
  12. Firpo, S., Fortin, N. M., & Lemieux, T. (2009). Unconditional quantile regressions. Econometrica, 77(3), 953–973.CrossRefGoogle Scholar
  13. Firpo, S. P., Fortin, N. M., & Lemieux, T. (2018). Decomposing wage distributions using recentered influence function regressions. Econometrics, 6(2), 1–40.CrossRefGoogle Scholar
  14. Frid, C. J., Wyman, D. M., & Coffey, B. (2016). Effects of wealth inequality on entrepreneurship. Small Business Economics, 47(4), 895–920.CrossRefGoogle Scholar
  15. Fritsch, M., Kritikos, A. S., & Sorgner, A. (2015). Why did self-employment increase so strongly in germany? Entrepreneurship & Regional Development, 27(5–6), 307–333.CrossRefGoogle Scholar
  16. García-Peñalosa, C., & Orgiazzi, E. (2013). Factor components of inequality: A cross-country study. Review of Income and Wealth, 59(4), 689–727.CrossRefGoogle Scholar
  17. Goebel, J., Grabka, M. M., Liebig, S., Kroh, M., Richter, D., Schröder, C., & Schupp, J. (2018). The german socio-economic panel (soep). Jahrbücher für Nationalökonomie und Statistik / Journal of Economics and Statistics.Google Scholar
  18. Halvarsson, D., Korpi, M., & Wennberg, K. (2018). Entrepreneurship and income inequality. Journal of Economic Behavior & Organization, 145, 275–293.CrossRefGoogle Scholar
  19. Hamilton, B. H. (2000). Does entrepreneurship pay? an empirical analysis of the returns to self-employment. Journal of Political Economy, 108(3), 604–631.CrossRefGoogle Scholar
  20. Hampel, F. R., Ronchetti, E. M., Rousseeuw, P. J., & Stahel, W. A. (1986). Robust statistics: The approach based on influence functions. New York: Wiley.Google Scholar
  21. Hurst, E., & Pugsley, B. W. (2011). What do small businesses do? Brookings Papers on Economic Activity, 43(2), 73–142.CrossRefGoogle Scholar
  22. Lechmann, D. S. (2015). Can working conditions explain the return-to-entrepreneurship puzzle? Journal for Labour Market Research, 48(4), 271–286.CrossRefGoogle Scholar
  23. Lechmann, D. S., & Wunder, C. (2017). The dynamics of solo self-employment: Persistence and transition to employership. Labour Economics, 49, 95–105.CrossRefGoogle Scholar
  24. Levine, R., & Rubinstein, Y. (2017). Smart and illicit: Who becomes an entrepreneur and do they earn more? The Quarterly Journal of Economics, 132(2), 963–1018.CrossRefGoogle Scholar
  25. Maier, M.F., & Ivanov, B. (2018). Selbstständige Erwerbstätigkeit in Deutschland. Forschungsbericht 514. The German Federal Ministry for Labour and Social Affairs (BMAS).Google Scholar
  26. Metzger, G. (2015). KfW-Gründungsmonitor 2015. KfW Bankengruppe, Frankfurt a. M.: Tabellen- und Methodenband. Technical report.Google Scholar
  27. Moskowitz, T. J., & Vissing-Jorgensen, A. (2002). The returns to entrepreneurial investment: A private equity premium puzzle? The American Economic Review, 92(4), 745–778.CrossRefGoogle Scholar
  28. Ritzen, J., & Zimmermann, K. F. (2018). Fading hope and the rise in inequality in the united states. Eurasian Business Review, 8(1), 1–12.CrossRefGoogle Scholar
  29. Schoar, A. (2010). The Divide between Subsistence and Transformational Entrepreneurship. In Innovation Policy and the Economy, Vol. 10, PP. 57–81. University of Chicago Press.Google Scholar
  30. Shane, S. (2009). Why encouraging more people to become entrepreneurs is bad public policy. Small Business Economics, 33(2), 141–149.CrossRefGoogle Scholar
  31. Sorgner, A., Fritsch, M., & Kritikos, A. (2017). Do entrepreneurs really earn less? Small Business Economics, 49(2), 251–272.CrossRefGoogle Scholar
  32. Stam, E. (2013). Knowledge and entrepreneurial employees: A country-level analysis. Small Business Economics, 41(4), 887–898.CrossRefGoogle Scholar
  33. Van Stel, A., Wennekers, S., & Scholman, G. (2014). Solo self-employed versus employer entrepreneurs: Determinants and macro-economic effects in oecd countries. Eurasian Business Review, 4(1), 107–136.CrossRefGoogle Scholar
  34. Van Kerm, P. (2015). Influence functions at work. In United Kingdom Stata Users’ Group Meetings 2015, Stata Users Group.Google Scholar
  35. Wagner, G. G., Frick, J. R., & Schupp, J. (2007). The german socio-economic panel study (soep)—scope, evolution and enhancements. Schmollers Jahrbuch: Journal of Applied Social Science Studies, 127(1), 139–169.Google Scholar

Copyright information

© Eurasia Business and Economics Society 2019

Authors and Affiliations

  1. 1.Institut für Mittelstandsforschung (IfM) Bonn, Global Labor Organization (GLO)BonnGermany

Personalised recommendations