Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240398 
Year of Publication: 
2020
Series/Report no.: 
CHCP Working Paper No. 2020-9
Publisher: 
The University of Western Ontario, Centre for Human Capital and Productivity (CHCP), London (Ontario)
Abstract: 
Selection into self-employment among the poor is dominated by subsistence concerns, which leads to high levels of unproductive self-employment in developing countries. We incorporate this view into an otherwise benchmark macro-development model by allowing for labor frictions. Standard models that rely only on financial frictions are at odds with crucial features of the data, including large self-employment rates among the poor and the response of labor markets after well-identified labor demand shocks. We study the efficacy of a wide range of development policies on occupational choices, prices, and productivity. We find that providing unemployment benefits improves selection into self-employment, increasing total-factor productivity (TFP). Self-employment grants and unconditional transfers lower TFP by making self-employment more attractive to low-productivity individuals. Finally, financial reforms that improve access to credit succeed in raising productivity, but they do not address the subsistence concerns of poor individuals. Self-employment is still concentrated among the poor after the reforms take place.
Subjects: 
Self-Employment
Unemployment
Development
Micro-Finance
JEL: 
J25
E44
O11
O16
O17
Document Type: 
Working Paper

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