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Who skims the cream of the Italian graduate crop? Wage employment versus self-employment

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Abstract

This paper tests whether academic achievement is a significant determinant of employment status in the Italian labor market: are new entrepreneurs selected from the top or bottom end of the graduate ability distribution? Is the cream of the graduate crop pulled into self-employment by the higher expected earnings or are individuals with lower degree score pushed into entrepreneurship by poor alternatives? Our data show a strong negative relation between academic achievement and self-employment status, i.e., we find skimming of the best graduates into wage and salary work.

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Notes

  1. For example, Blanchflower (2004) shows that in Europe the probability of being self-employed is lower the more educated an individual is, while the opposite is true in the USA. In Italy, as in the USA, the probability of being self-employed is higher for tertiary educated persons (Eurostat 2007).

  2. In Italy the self-employment rate is three times higher than in Denmark and more than double the share in France, Germany, Sweden, The Netherlands, Austria, and Finland (Eurostat 2005).

  3. A recent theory formalized by Lazear (2004, 2005) posits that an individual who is innately well versed in a variety of fields, i.e., a Jack-of-all-trades, has a high probability of becoming an entrepreneur. Consistent evidence that a balanced skill mix causally stimulates entrepreneurship is given by Wagner (2003) based on German data. On the contrary, Silva (2006) using Italian data shows that gathering expertise across various subjects does not increase the chances of becoming an entrepreneur.

  4. Cowling et al. (2004) also find substantive differences in job creating capability across gender and education that we cannot verify with our data set.

  5. A referee suggests this hypothesis, which we can neither confirm nor reject because our data refers to individuals with very short career advancement (3 years after graduation).

  6. Traditionally, Italian standard work contracts have been characterized by a high degree of employment protection, mostly against dismissals. According to the OECD’s (1999) Employment Outlook, Italy ranked first in terms of strictness of regulation of permanent contracts during the 1990s.

  7. Robson (2003) finds only very limited evidence to support the hypothesis that stricter employment protection legislation promotes self-employment in OECD countries.

  8. The graduate population of 2001 consisted of 155,664 individuals (67,913 males and 87,751 females). The ISTAT survey was stratified on the basis of degree course taken, University attended, and sex of individual student. The response rate was about 67.6%, yielding a data set containing information on 26,006 graduates.

  9. After having obtained their degree in medicine, in general students carry out a specialist activity which lasts at least 3 years.

  10. Due to missing data we cannot reliably build the hourly wage variable. That is why we restrict the sample to full-time workers only as Dolton and Makepeace (1990), Rees and Shah (1986), and Johansson (2000). Following Rees and Shah (1986) we define the full-time workers as those who worked more than 30 h per week.

  11. The estimate is based on a normal kernel function.

  12. In the Italian education system, each faculty only sets a minimum number of years in which to obtain a degree. A consequence is that there is a high dispersion in the age at which students graduate. Speed of completion of the academic career is, therefore, together with final mark, an important component of educational performance.

  13. The final degree score ranges from 66 to 110 (for some universities the maximum mark awarded is 100). According to each faculty internal ruling a laude (distinction) may be assigned to candidates with a 110/110 mark for recognition of the excellence of their thesis (in this analysis the 110 cum laude mark was transformed to 113).

  14. First-order stochastic dominance is a possible ordering between two stochastic distributions. Let F(x) and M(x) denote the cumulative distribution functions of educational performance x for female and male students, respectively. F first-order stochastically dominates M if and only if, for every possible educational performance x, F(x) ≤ M(x). This means that, for every possible value of x, the probability of getting an educational performance that high is never better in M than in F.

  15. See Dolton and Makepeace (1990).

  16. These variables should be uncorrelated with the error terms of the earnings equation but have a strong effect on selectivity; see Johansson (2000).

  17. See, for instance Rees and Shah (1986) and Taylor (1996).

  18. This result is in line with the findings of Dolton and Makepeace (1990), Fujii and Hawley (1991), Taylor (1996), and Johansson (2000).

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Authors and Affiliations

  1. University of Pavia, Pavia, Italy

    Carolina Castagnetti & Luisa Rosti

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  1. Carolina Castagnetti
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  2. Luisa Rosti
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Correspondence to Carolina Castagnetti.

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Castagnetti, C., Rosti, L. Who skims the cream of the Italian graduate crop? Wage employment versus self-employment. Small Bus Econ 36, 223–234 (2011). https://doi.org/10.1007/s11187-009-9199-1

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