Business Start-Ups or Disguised Unemployment? Evidence on the Determinants of Self-Employment from Urban China

Abstract

This study provides evidence on the determinants of self-employment for urban local registration residents in China. Using CHIP2007, the employment status is divided into four categories: self-employed employers, own-account workers, employees, and the unemployed. Several major con-clusions emerge. First, compared with the employee, holding other factors (e.g., human capital) constant, the wage premium associated with the self-employed employer is higher, while the wage premium associated with own-account workers is lower. Second, the influence of the wage premium on the self-employed employer is negatively significant, and the influence of the wage premium on the own-account workers is insignificant. These results reveal that compared with employees, being a self-employed or own-account worker is seemingly not a better choice for employment in urban China; being self-employed is similar to disguised unemployment. Third, considering the influence of all the factors: the wage level categories (wage levels in the public and private sectors), the entry period categories (the SOE reform period and the recent period), the age categories (aged 50 and over, and aged below 50), and the regional categories (the East, the Central, and the West regions), robust checks were conducted. In the own-account workers group, the business creation hypothesis is nearly rejected again; in fact, it is only supported for workers who entered the self-employment sector in the SOE reform period (entered early into the self-employment sector group), and workers aged over 50.