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Who benefits from being self-employed in urban Ghana?

Adeola Oyenubi
Youth jobs, skills and entrepreneurship

This paper explores the earnings gap between the self-employed and wage earners in urban Ghana. This is important in understanding the drivers of inequality, we hypothesise that heterogeneity in informal sector earnings will have implications for the income gap between self-employed individuals and wage earners. This heterogeneity in earnings will be concealed at the mean. However, the information about who benefits and who is penalized in the informal sector can be important from the policy perspective. Furthermore, this paper investigates the possibility that result from quantile regression can depend on the assumption the estimator makes about the variation due to the fixed effect. The results show that at the mean, self-employed individuals enjoy a premium, however, quantile result suggests that this is driven by the individuals at the upper end of the self-employment earnings distribution. At the lower quantiles, being self-employed has no effect or attracts a penalty (depending on the assumption of the quantile estimator). Decomposing the earnings gap show that the self-employment premium at the higher quantiles is mostly driven by the return effect.