Self-Employment and Queues for Wage Work: Evidence from Chile

Abstract

Self-employment can be considered as either the result of a self-selection process or areflection of rigidities and skill mismatch in the labour market or both. We estimate a doubleselection model where individuals queue for wage work instead of being self-employed in the firststage, followed by employers selecting from the queue in the second. We find statistical supportfor the double selection model, implying that some individuals are self-employed because theycannot find wage work, while other self-select to be self-employed. Individuals with higher educationare more often chosen as wage workers, and belonging to an ethnic group decreases the likelihood ofbeing chosen. Additionally, earnings equations suggest that high ability individuals perform better inboth the wage work and self-employment sectors.