An econometric test of the self-employment model: The case of Italy

Abstract

In this paper the authors put forward their attempt to test a self-employment model using an Italian data set which collects information about 78 Italian provinces (out of 95) over the period of 1985–1988. The self-employment model is introduced as a useful way to explain the formation of new small firms and subsequently previous econometric studies based on this model are discussed and compared.

Once the empirical definitions of the variables are clarified, the econometric specification is introduced in Section 4 and results are discussed in Section 5 and 6.

The general outcome of the estimates backs to a certain extent the self-employment approach which has already been tested with good results both in the U.K. and in the U.S. As far as the income choice is concerned, it turns out to be important in explaining the birth of new small firms. With regard to the role of job-losses, they also turn out to be significantly correlated with the high rates of firm formation.

On the other hand, the discussion reported in Section 5 underlines the importance of other environmental factors which were not included in the original specification of Section 4. In particular, if the numerosity of the existing small firms is taken into account, self-employment relationships lose some of their significance. p]The laborer asks what he thinks the entrepreneur will be able to pay, and in any case will not accept less than he can get from some other entrepreneur, or by turning entrepreneur himself. In the same way the entrepreneur offers to any laborer what he thinks he must in order to secure his services, and in any case not more than he thinks the laborer will actually be worth to him, keeping in mind what he can get by turning laborer himself.

Knight, 1921, p. 273