Being Your Own Boss: Entrepreneurial Choice, Earnings and Employment Creation in 1990s Britain

The paper reports micro-econometric evidence on the factors that influence self-employment choice, earnings and the ability of the self-employed to generate employment for others. It uses recent longitudinal data for the UK, and is therefore able to exploit multiple observations on the same individual to control for unobserved heterogeneity, and mitigate problems of endogeneity which trouble cross-sectional work. The paper finds considerable evidence for sample selection effects in both the determination of earnings and employment generation. The self-employed do not appear to have comparative advantage over the employed in earnings but do in their ability to create jobs. Other significant explanatory factors are found to be access to finance particularly investment income, as well as the possession of housing equity for collateral purposes, and parental background. Self-employed parents tend to be more likely to have self-employed children, and perhaps more interestingly, the probability of self-employment and the level of employment of others is higher if one’s father was a selfemployed employer.