SelfEmployment in the Developing World Gindling and Newhouse and Who Are the Worlds Entrepreneurs and What Constraints Do They Face Margolis and Robalino Who are the SelfEmployed in the Developing World ID: 538299
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Slide1
Based on ““Self-Employment in the Developing World” (Gindling and Newhouse)and“Who Are the World’s Entrepreneurs and What Constraints Do They Face?” (Margolis and Robalino)
Who are the Self-Employed in the Developing World?Slide2
Motivation (1)Wage and salary employment is lacking in the developing worldSlide3
Motivation (2)Self Employment is a key source of jobs in the developing worldSlide4
OutlineConstrained occupational choice model of employment status determinationDataDescriptive statics: Who are the self employed?Determinants of “successful” self employment
Distribution of unsuccessful self employed with potential for successSlide5
Occupational choice with constraintsCompare the value of self-employment / entrepreneurship and wage / salary employment
Determinants of the value of a
wage/salary job
:
Likelihood of finding a job
Age
Level of education and skills (technical, cognitive, and non-cognitive)
Richness of their social network.
Stability of the job
Income from the job
Non-pecuniary benefits
Possible access to social protection
Health and safety risks
Determinants of the value of
self employment/entrepreneurship
:
Availability of entrepreneurial earnings opportunity
Startup capital
Stability of income stream
Availability of alternative income insurance mechanisms
Skills
Individual preferences, risk aversion, time preferences, etc… determine weightsSlide6
Occupational choice with constraintsInternal ConstraintsLimited skills
Tight market for salaried jobs (may be linked to rural/urban status)
Limited capital/collateral
External constraints
“Subsistence activity” is economically non-viable
Use of inappropriate technologies
Limited access to capital
Lack of information about better technologies or opportunities
Mobility restrictions.
Regulations that make it difficult to create a business or access credit
Lack of infrastructure
Product market imperfections that reduce competition
Property rights
Contract enforcement
Lack of information and ability to process it.
Lack of adequate social protection systemsSlide7
Occupational choice with constraintsA framework for thinking about who becomes self employedAllows us to understand why some individuals might be less successful than othersInternal or External reasons
The frequency “constrained gazelles” provides an indication of the importance of constraints
We use micro data to address these questionsSlide8
Data – I2D2 v2(International Income Distribution Database)Compilation of harmonized household micro data sets from nearly 100 countriesMaintained by the World Bank’s Development Economics groupCovers all income levels
Some data sets have extra variables
Household consumption
Earnings (validity?)
AssetsSlide9
Data – I2D2 v2(International Income Distribution Database)
No
People’s
Republic of ChinaSlide10
Data – I2D2 v2(International Income Distribution Database)
No United States of AmericaSlide11
Who are the self employed? (Overall)
In Low Income and Lower Middle Income countries, less than half of workers are wage and salary employees.
Over 70% of workers in LICs are own account workers or non-paid employees, mostly in agriculture.
As the GNI per capita increases, share of wage and salaried employees or employers increases, percent of workers who are own account, non-paid or in agriculture falls.Slide12
Who are the self employed? (Income level)
Separating Non-agricultural workers into wage and salary, employer, own account and non-paid
Separating Agricultural workers into wage and salary, employer, own account and non-paid
As per capita GDP rises (to about 600-700 2005 US PPP dollars) workers transition out of non-paid employment and own account in agriculture and into non-agricultural own account.
As countries move from low to lower middle income (from about $600 to $1200), there is a shift into wage and salaried work within both agriculture and non-agriculture.
As middle income countries grow there is a structural transformation into non-agricultural wage and salary employment, and to a lesser extent non-agricultural employer, and out of all types of agricultural employment and non-agricultural own account.Slide13
Who are the self employed? (Education)
Most educated: Non-agricultural employers and non-agricultural wage and salaried employees
Least educated: Agricultural workers.
Intermediate: Non-agricultural own account workers and Non-agricultural non-paid employees.
Similar patterns
for countries in all regions and income groups.
In particular, as per capita GNI increases employers do not become more educated relative to the own account workers or wage and salaried employees
Non-agriculture
Wage and Salaried Worker
Non-paid Employees
Employer
Own Account
Agriculture
Not Employed
All Countries
9.4
7.1
10.4
6.9
4.2
6.7
East Asia and Pacific
10.3
8.3
9.8
7.5
5.7
8.5
Europe and Central Asia
13.0
10.5
12.8
10.5
10.0
10.2
Latin America and Caribbean
9.8
8.5
10.4
7.7
4.8
7.7
Middle East and North Africa
9.3
6.8
10.2
7.2
5.7
8.4
South Asia
7.0
6.4
10.3
6.2
3.4
5.3
Sub-Saharan Africa
9.6
5.7
8.3
6.2
4.2
6.3
Low Income
6.7
6.0
7.8
5.3
3.9
4.9
Lower Middle Income
8.5
6.9
10.1
6.8
4.1
6.2
Upper Middle Income
10.9
8.9
11.0
8.2
6.5
8.8Slide14
Who are the self employed? (Gender)
For countries in all regions and income groups,
Women are more likely to be non-employed or agricultural non-paid employees,
Men are more likely to be in any other employment category.
Men are more likely than women to be employers or own account workers in all regions.
In general, women are less likely to be in high quality employment categories than are men.
The biggest differences between men and women are in MENA and SA.Slide15
Who are the self employed? (Age)
Proportion of both men and women who are employers increases with age from 15 until about 45 years old, and then remains relatively constant (until around 65, when the proportion of workers in all employment categories falls).
Proportion of both men and women who are own account workers increases sharply with age until the late 30s, levels off, and then begins to fall from 40 on.
For men, the proportion working as non-paid employees is high for teenagers, then falls sharply from after men reach 20 years old.
For women, the proportion of working as non-paid employees is high for teenagers and remains high until they are about 40 years old, after which it begins to fall slowly.Slide16
Who are the self employed? (Sector)
In general, wage and salaried employees are much more likely to be in services than any other industry sector. However, there are some exceptions:
In EAP and SA, wage and salaried workers more likely in manufacturing than services.
I
n LMICs, wage and salaried workers more likely in manufacturing than services.Slide17
Who are the self employed? (Consumption)
Ranking from richest to poorest:
Non-agricultural employers
Wage and salary workers
Own-Account and Unpaid workers
Not Employed
Agricultural workersSlide18
“Successful” self employmentDefinition 1: EmployerMore robustSmall cell sizes for “success”
Region and Income Level
NON-AGRICULTURE
AGRICULTURE
(
number of countries in sample)
Successful
Unsuccessful
Successful
Unsuccessful
All Countries (89)
2.1
14.4
0.8
15.4
Low and Middle Income Countries (66)
1.8
15.7
0.9
18.2
Region (Low and Middle Income Countries)
East Asia and Pacific (6)
1.8
17.2
1.5
18.5
Europe and Central Asia (13)
2.6
5.0
0.3
4.7
Latin America and the Caribbean (17)
3.8
18.5
1.2
7.3
Middle East and North Africa (4)
4.0
8.7
5.8
10.2
South Asia (4)
0.7
15.6
0.5
17.8
Sub-Saharan Africa (21)
1.4
19.0
1.0
37.1
Per Capita GNI
Low Income (19)
1.0
17.9
0.6
33.7
Lower Middle Income (27)
1.3
15.6
1.1
17.6
Upper Middle Income (22)
3.6
14.3
0.8
5.4
High Income (24)
3.5
7.5
0.2
1.8Slide19
“Successful” self employmentDefinition 2: Out of poverty ($2 / day consumption)Less cleanLarger cell sizes for “success”
Region and Income Level
NON-AGRICULTURE
AGRICULTURE
(number of countries in sample)
Successful
Unsuccessful
Successful
Unsuccessful
All countries (45)
7.7
9.3
4.3
14.1
Region
East Asia and Pacific (6)
10.3
8.7
6.1
13.9
Europe and Central Asia (7)
4.6
0.3
2.0
0.8
Latin America and the Caribbean (10)
19.0
2.9
4.3
3.6
Middle East and North Africa (3)
10.0
2.4
11.9
4.9
South Asia (2)
5.1
10.8
3.4
15.1
Sub-Saharan Africa (17)
5.2
18.3
4.9
31.1
Per Capita GNI
Low Income (13)
5.7
15.0
4.9
25.3
Lower Middle Income (20)
6.8
9.9
4.4
14.6
Upper Middle Income (12)
13.2
1.7
3.2
1.9Slide20
Probit estimationModels include gender, education dummies and gender/age interactionsMean pseudo R-square for these Probits is 0.0834 for definition 1, and 0.1231 for definition 2 Models are run country by country
Robustness checks:
Control for majority social group
With and without Sector and Urban/Rural
“Successful” self employment
(Methodology)Slide21
“Successful” self employment (Results)The probability of being an employer is higher in urban areas than rural areas.
In general, among industry sectors the probability of being successful is lowest in manufacturing.
Males are more likely to be successful
The probability of being successful increases with education
For both men women:
Probability of being an employer increases with age from 15 to 49 (and then remains about the same, or falls, for the 50-65 year old group).
Probability of being non-poor increases with age, except in low income countries, where the probability of being successful is highest for those between 25 and 49 years old.Slide22
“Successful” self employment (Marginal effects)
Definition 1: Employer
Definition 2: $2/day consumptionSlide23
Unsuccessful self employed with potential for success (Definition)Using estimated probability of success for each country self employed individual (Grimm, Knorringa
and Lay, 2012)
:
Calculate mean probability of success among the successful self employed
Determine a threshold such that the mean probability of success for all individuals with a predicted probability of success above the threshold among the “unsuccessful” is the same as the mean predicted probability for the “successful”
Requires “common support” for the predicted probability distributions
Thresholds are country specific
Define “potentially successful” as those individuals with a predicted probability of success above the thresholdSlide24
Unsuccessful self employed with potential for success (Results)On average, in Low and Middle Income Countries 36-37% of the non-agricultural own account workers have a high potential to become successful.Share of potential employers increases with GNI per capita, but no such tendency with second definition
By region:
High share of “constrained gazelles” in Europe and Central Asia by both definitions
Proportion of self-employed with potential to pull their households out of poverty is much lower in South Asia (only India and Bangladesh, however) than any other region.
Sub-Saharan Africa has few self-employed with potential to be employers who are not
Definition 1 (Employer)
Definition 2 ($2/day)
All Low & Middle Income Countries (50, 38)
36%
37%
Region (Low and Middle Income)
East Asia and Pacific (6, 6)
34%
43%
Europe and Central Asia (6, 2)
55%
63%
Latin America and the Caribbean (15, 10)
40%
47%
Middle East and North Africa (4, 3)
41%
50%
South Asia (3, 2)
36%
29%
Sub-Saharan Africa (16, 15)
27%
52%
Per Capita GNI
Low Income (15, 12)
34%
42%
Lower Middle Income (21, 17)
34%
35%
Upper Middle Income (14, 9)
42%
47%
High Income (23, 0)
72%Slide25
ConclusionsSuccessful self-employed (and those with a high potential to be successful) are more educated, older, more likely to be a household head and less likely to be in agriculture.At all levels of development, most self employed workers are unsuccessful.
Approximately 36% of unsuccessful self-employed have characteristics similar to successful self-employed
As per capita income increases:
Proportion of workers who are unsuccessful self employed falls
Most of the unsuccessful self employed are absorbed into wage and salary work
A small minority become successful entrepreneurs
.
Household consumption is correlated with employment status
Employer households
are wealthiest
Wage and salary worker households better off than own account or unpaid worker households
Agricultural worker households are the poorestSlide26
ConclusionsIn the context of the constrained occupational choice model:The characteristics associated with (required by?) wage employment change with level of development
Employment opportunities in the wage and salary sector become increasingly prevalent as countries grow, but self employment is quantitatively important in the earlier stages of development
As constraints to entering wage employment fall, people who were previously constrained to go to self-employment (and are not likely to be successful) opt out of self employment
Constraints to success seem present in all regions and income levels
Vary across regions, and across countries within region
Further work is needed to identify which constraints are most relevant in
each context
Suggests an agenda for policy intervention that needs to be tailored to country specificities and populations within countries