Self-Employment and Wage Discrimination in Switzerland

Abstract

This paper investigates the determinants of self-employment in Switzerland, focusing on the differences between groups that are discriminated against on the wage-job market groups that are treated fairly. The main hypothesis is that members of discriminated against groups may go into entrepreneurship or self-employment in order to avoid the income penalty they face. We test the self-employment model with the help of a switching regression model for various groups in order to find out whether the selection process into self-employment is the same for discriminated against or fairly treated individuals. Our results show that foreigners are not negatively selected towards wage-work which challenges the existence of a "push" effect due to wage discrimination. In the mean time, women show a completely different selection process into wage-work and self-employment than men. However, we cannot conclude that discrimination pushes women into self-employment. Finally, we also examine whether differences in the rate of self-employment between groups can be explained by different characteristics endowments or by different determinants by carrying out a probability decomposition in a probit model framework.