published in: International Journal of Manpower, 2006, 27 (3), 208-229
This paper focuses on the entrepreneurial undertaking of immigrants and natives in
Germany. We first study factors that affect the sorting of individuals into self-employment and
then we investigate whether self-employment has a differential effect on the wages of
individual workers and can lead them to economic success. We employ recent data from the
German Socioeconomic Panel that allow us to identify and compare four distinct groups:
West Germans, East Germans, guestworkers, and ethnic Germans. We find that the
probability of self-employment increases significantly with age for all groups. For immigrants,
the years-since-migration exhibits a U-shape. During the first years since migration the
likelihood of self-employment decreases over time. However, when immigrants have
accumulated more years of residence in Germany, the likelihood is increasing again. This
suggests that once immigrants have overcome the initial adjustment shock, self-employment
is a means to take advantage of the opportunities of the host country and achieve a higher
socio-economic standing. Among immigrants, guestworkers are twice as likely to choose self-employment
as ethnic Germans. Further, we find that self-employment is a lucrative choice
only for Germans who are in the upper end of the income distribution. “Rich” self-employed
Germans enjoy a wage premium compared to their salaried counterparts. However,
immigrants are able to traverse the socioeconomic gap through self-employment, irrespective
of the part of the distribution they are at. Self-employed immigrants earn 22% more than the
salaried immigrants.
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