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Labor market transitions of immigrants with emphasis on marginalization and self-employment

Abstract

In developed countries, immigrants are more likely to be nonemployed and self-employed compared to natives. Based on register data of male immigrants in Denmark, we performed a detailed investigation of the immigrant–native difference in transition patterns across labor market states. We find that a high proportion of immigrants from non-Western countries tend to be marginalized relative to natives, and they tend to use self-employment to escape marginalization.

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Notes

  1. 1.

    This is in line with Carrasco (1999), who demonstrates that it is important to investigate both transitions from unemployment and from wage-employment to gain insight on the reasons to become self-employed.

  2. 2.

    Many studies find a positive self-selection of supposedly innovative individuals into self-employment (Evans and Leighton 1989; Evans and Jovanovic 1989; Taylor 1996; Fairlie and Meyer 1996).Contrary to this finding, several papers find that push factors such as previous unemployment experience, involuntary job loss, or low labor income prompt self-employment (Carrasco 1999; Moore and Mueller 2002; Alba-Ramirez 1994; Evans and Leighton 1989). In some sectors, there is a considerable need for capital to start a business, and therefore, part of the literature is concerned with liquidity constraints (Lindh and Olson 1996; Blanchflower and Oswald 1998; Evans and Jovanovic 1989; Taylor 2001). To loosen the liquidity constraints, public self-employment support has been introduced, although the success has been questioned (Pfeiffer and Reize 2000).

  3. 3.

    See Light (1984).

  4. 4.

    See studies by Yuengert (1995), Hammarstedt (2001), and Hout and Rosen (2000).

  5. 5.

    Borjas (1986) and Borjas and Bronars (1989) argue that ethnic enclaves are a significant explanation of self-employment among immigrants because it is easier to attract customers and employees in an area with inhabitants of similar ethnic origin. The empirical evidence, however, is mixed. Contrary to the prediction of the theory, Clark and Drinkwater (2000) find a negative effect of enclaves on self-employment, whereas Aldrich and Waldinger (1990), Yuengert (1995), and Bager and Rezaei (2001) find no effect of ethnic enclaves.

  6. 6.

    A similar analysis is performed by Constant and Zimmermann (2004), although their focus is on the relationship between labor market dynamics and the business cycles.

  7. 7.

    The adding up constraint in the transition matrix implies that a solution to the eigenvalue 1 exists. Then p * is the eigenvector corresponding to that eigenvalue.

  8. 8.

    For a further description of immigrants in Denmark and the data set applied, see, e.g., Husted et al. (2001).

  9. 9.

    Furthermore, information for some of the individual characteristics are only available from 1988 and onwards.

  10. 10.

    Including agriculture (roughly 20% of native self-employed).

  11. 11.

    Including part-time employment, which is a small number.

  12. 12.

    In some sense Jones and Riddell (1999) represent a compromise between the two viewpoints, as they use transition probabilities to identify a new labor market state of marginal attachment to the labor force.

  13. 13.

    EC-12 comprises the 12 EU member states before the expansion in 1997.

  14. 14.

    This number is consistent with other statistics and conceals the effect of 10% non-participation, to which should be added unemployment that peaked at 13% in 1993.

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Acknowledgment

We thank Lars Muus, George Neumann, and Stephen Jones for helpful discussions, and we appreciate comments from two anonymous referees, seminar participants at McMaster University, York University, University of Illinois at Chicago, University of Copenhagen, University of Aarhus, Aarhus School of Business, Copenhagen Business School, IZA, the ESPE Conference, and the CEPR/TSER Workshop. The usual disclaimer applies.

This project was supported financially by the Danish National Research Foundation (the FREJA grant) and the Institute of Local Government Studies, AKF. In addition, Helena Skyt Nielsen was supported by the Social Science Research Council, and Mette Ejrnæs and Allan Würtz acknowledge support from the Center for Applied Microeconometrics (CAM). CAM’s activities are financed by a grant from the Danish National Research Foundation.

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Correspondence to Helena Skyt Nielsen.

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Responsible editor: Klaus F. Zimmermann

Appendices

Appendix A

Description of the variables

The data is register-based with annual observations. Our definition of self-employment relies on two variables concerning employment status. The primary variable is a pure register-based variable and relates to the dominating employment status during the year, while the secondary variable is constructed on the basis of several other variables. We only use the secondary variable in cases where the primary variable is missing. If the secondary variable is also missing, we cannot determine the state of employment, which will therefore be missing. Furthermore, if a person is registered with employment other than self-employment, but receives public self-employment support, we treat him as self-employed.

Table 7 Explanatory variables

Extended explanations regarding some explanatory variables

Entitlement to unemployment insurance benefits (UIB) requires membership of an unemployment insurance fund for more than 1 year and at least 26 weeks of employment within the last 3 years. However, different rules apply to, e.g., students and individuals on leave. Until 1993, the entitlement expired after 3 years, whereas after 1993, special circumstances (e.g., participation in a reemployment program) might justify UIB for up to 7 years. On the basis of these rules and using information from the unemployment registers, variables concerning eligibility are constructed. The first set of variables (‘UIB11’ and ‘UIB12’) describes whether the individual is entitled to UIB. The first variable (‘UIB11‘) describes whether the current year is the first year of entitlement, while the second variable (‘UIB12‘) describes whether the individual has been entitled for more than 1 year. The variables ‘UIB11’ and ‘UIB12’ are mutually exclusive. The second set of variables (‘UIB21’, ‘UIB22’, and ‘UIB23’) describes whether entitlement to UIB has expired or never existed. The first variable (‘UIB21‘) describes whether the entitlement expires within the current year (conditional on being entitled within the current year), while the second variable (‘UIB22‘) describes whether it expired within the last 3 years excluding the current year. The last variable (‘UIB23‘) describes whether the entitlement expired more than 3 years ago or never prevailed. The variables ‘UIB21’, ‘UIB22’, and ‘UIB23’ are mutually exclusive.

During the period of consideration, different rules for public self-employment support (PSS) prevailed. Entitlement presumes UIB entitlement plus at least 5 months of unemployment within the last 8 months. The PSS expires after approximately 3 years or if the labor market status changes. Along with the rules for entitlement, the rules for expiration have changed during our sample period. The first set of variables (‘PSS11’ and ‘PSS12’) describes whether the individuals are entitled to PSS. The first variable (‘PSS11‘) describes whether the individual is entitled to PPS and whether the current year is the first year of the entitlement, while the second variable (‘PSS12‘) describes whether the individual is entitled to PPS and has been entitled for more than 1 year. The variables ‘PSS11’ and ‘PSS12’ are mutually exclusive. The second set of variables (‘PSS21’ and ‘PSS22’) describes whether entitlement to PSS has expired. The first variable (‘PSS21’) describes whether the entitlement expires within the current year (conditional on being entitled within the current year), while the second variable (‘PSS22’) describes whether the entitlement expired more than 1 year ago or never existed. The variables ‘PSS21’ and ‘PSS22’ are mutually exclusive.

Appendix B

Table 8 Results from estimation of multinomial models for natives
Table 9 Results from estimation of multinomial models for immigrants

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Blume, K., Ejrnæs, M., Nielsen, H.S. et al. Labor market transitions of immigrants with emphasis on marginalization and self-employment. J Popul Econ 22, 881–908 (2009). https://doi.org/10.1007/s00148-008-0191-x

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Keywords

  • Discrete competing risks
  • Panel data
  • Self-employment

JEL Classification

  • C23
  • C41
  • J64