Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300064 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11136
Publisher: 
CESifo GmbH, Munich
Abstract: 
This paper documents the role of unemployment and earnings risk in reconciling evidence in payoff differentials between self-employment and paid-employment. Using Spanish administrative data, we characterize the distribution and dynamics of earnings and document lower and less dispersed earnings in self-employment. We consider alternative hypotheses and highlight the role of lower unemployment risk in self-employment. We decompose earnings risk dynamics by estimating a life-cycle earnings process. Indeed, the self-employed experience lower returns but also face lower volatility and persistence of shocks throughout their life-cycle. Our results challenge the conventional view that self-employment necessarily entails higher risk and highlight that accounting for differences in labor earnings risk is important to reconcile the payoff differentials between self-employment and paid-employment.
Subjects: 
self-employment
segmented labor markets
earnings risk
income process
JEL: 
J24
J31
J41
Document Type: 
Working Paper
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