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Self-employment in the EU: quality work, precarious work or both?

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Abstract

This paper estimates the differences in earnings between self-employed and employees in the EU using the European Union Statistics on Income and Living Conditions data and quantile regression methods. It finds that in both Eastern and Western Europe, self-employment pays more than regular employment only for workers at the top of the earnings distribution and considerably less than regular employment for those below the median. These differences are smaller in Eastern Europe, reflecting lower protection of regular employees. This pattern is not driven by low-skilled workers, and it can be observed in both high-skilled and low-skilled occupations. Results are robust to accounting for differences in taxation, hours worked and individual unobserved characteristics. The evidence provided points to the lack of protective rights for the self-employed and low earnings at the beginning of the self-employment spells as the main explanations for lower earnings for the majority of self-employed.

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Notes

  1. For a survey of such policies at European and national level, see European Commission (2018a, 2018b).

  2. According to the OECD Framework for measuring quality of work, the main dimensions of quality of jobs are: earnings, job security and work environment (Cazes et al. 2015).

  3. For recent reviews of these studies, see Åstebro and Chen (2014) and Block et al. (2018).

  4. Earle and Sakova (2000), Večerník (2011), Hölscher et al. (2011), Dvouletý et al. (2019) are notable exceptions.

  5. Microfirms are defined as those with less than 10 employees.

  6. Measured as dummy variables for areas with high and intermediate densities of population.

  7. While the effect on both gross and net wages are relevant, due to better data coverage and cross-country comparability, the main analysis focuses on gross wages. The aim of this robustness check is to test whether the differences in earnings between the two categories are due, mainly, to differences in taxation, which in many EU countries is lower for self-employed, who also have lower access to social benefits.

  8. In addition, it lacks information on firm/employer characteristics, and the panel has a short time dimension, 4 years, making it unsuitable for fixed effect quantile regressions. Due to these limitations, these estimations are used only as a robustness check.

  9. A detailed discussion of the representativeness and response rates can be found in Eurostat (2014a).

  10. The webpage https://ec.europa.eu/eurostat/web/microdata/european-union-statistics-on-income-and-living-conditions provides a detailed description of the methodology an quality of data.

  11. This variable does not distinguish between self-employed with employees and without employees. The EU SILC includes a question that distinguishes between these two categories, but it refers to the current employment status, not the status during the reference period for which income is reported. Given these problems and the very small share (3.6%) of self-employed with employees, the study focuses on the overall category of self-employed.

  12. https://ec.europa.eu/eurostat/web/purchasing-power-parities/data/database

  13. These restrictions are relaxed in the robustness checks.

  14. Calculated as exp (βSE) – 1.

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Acknowledgements

The author thanks Prof. Martin Lukeš and Prof. Richard Upward, participants at Innovation Management, Entrepreneurship and Sustainability 2019, Theory and Applications in Knowledge Economy Conference 2019 and Czech Economic Society and Slovak Economic Association Meeting 2019 and anonymous referees for comments and suggestions. Errors and omissions remain the responsibilities of the author.

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Correspondence to Smaranda Pantea.

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Pantea, S. Self-employment in the EU: quality work, precarious work or both?. Small Bus Econ 58, 403–418 (2022). https://doi.org/10.1007/s11187-020-00423-y

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