Involuntary entrepreneurship – Evidence from Thai urban data

We structurally estimate a model of occupational choice between wage work and entrepreneurship which allows for ‘involuntary entrepreneurship’ (running business out necessity). Involuntary entrepreneurs would earn higher income as workers but cannot access job because labor market frictions. Using Thai urban household data, we the share involuntary 19% all businesses in our sample, with robustness runs yielding range from low 7% to high 25%, depending on data stratification empirical specification. significantly lower (85% less average) than rest are more likely among low-wealth low-schooling households. Decomposing estimated effects credit frictions, results imply 18.7% excess (involuntary) frictions 0.6% fewer both relative unconstrained optimum. Counterfactual policy evaluations show that can only be reduced by directly targeting attention paid equilibrium effect wage.