Self-employment in the EU: quality work, precarious work or both?
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Self-employment in the EU: quality work, precarious work or both? Smaranda Pantea
Accepted: 27 October 2020 # Springer Science+Business Media, LLC, part of Springer Nature 2020
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.
S. Pantea (*) Faculty of Business Administration, Department of Entrepreneurship, and Faculty of International Relations, Department of World Economy, Prague University of Economics and Business, W. Churchill Sq. 4, NB 234, 130 67 Prague 3, Czech Republic e-mail: [email protected]
Keywords Self-employment . Entrepreneurship . Labour contracts . Income distribution . Inequality . Quantile regressions . Transition economies JEL classifications D31 . J31 . J24 . J41 . L24 . L26 . P50
1 Introduction Self-employment accounts for an increasing share of new jobs and receives significant policy support in the EU,1 motivated, in part, by its contribution to job creation. Recently, concerns have been raised about the quality of the jobs created through self-employment (Fondeville et al. 2015; Eurofound 2017; OECD 2017; European Commission 2018a; Block et al. 2018), in particular, with regard to earnings.2 In line with these concerns, a large empirical literature shows that for the median worker, self-employment pays less than regular employment after controlling for individual characteristics.3 While this stylized fact is well-documented, there is no consensus about factors driving it. There is a concern that it may reflect lower negotiation power of the self-employed due to lack of coverage from wage-setting institutions as argued by 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).
S. Pantea
Schneck (2020). However, it may reflect also negative selection into self-employment (Åstebro et al. 2011), low earnings in the initial phases
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