Earnings, independence or unemployment: Why become self-employed?

This paper attempts to estimate the role played by three key variables (namely expected earnings, the desire for independence and the ability to find paid employment) on the paid employee/self-employment decision using a simple three stage utility maximization model. The empirical results suggest that individuals are attracted to self-employment because of higher expected earnings relative to paid employment and by the freedom from managerial constraints that it offers. Evidence is also produced supporting the prosperity pull argument for self-employment. Marital status, parents employment status, housing equity and occupational status clearly emerge as significant determinants of labour market choice.