Academic interest in self-employment has grown rapidly in recent decades. However, relatively little is known about the longitudinal patterns of young self-employed workers. In the first essay, I examine the patterns of self-employment that appear in the 1979 National Longitudinal Survey of Youth (NLSY79). I find that most of self-employed workers hold wage jobs before entering self-employment and come back to wage sector after experiencing one or two self-employment spells. Self-employment jobs differ in terms of industry distribution, for both men and women and they are--female self-employment jobs, in particular--likely to entail changes in industry. Additionally, I find that female self-employment spells are more likely to be followed by a large percent of time nonemployed and a small percent of time in the same industry compared to the wage employment while the opposite are true for the male self-employment spells.
Risk tolerance and liquidity constraints are widely believed to be key determinants of self-employment, but their independent effects have proved difficult to identify. In the second essay, I specify a theoretical model that illustrates how individual risk tolerance and liquidity constraints affect the decision to become self-employed. I then tackle the empirical identification problem by constructing a measure of risk tolerance that is corrected for reporting error, varies with age and assets, and allows for the endogeneity of assets. In contrast to previous studies that use regional variation in housing prices as an instrument for assets, I address the fact that housing appreciation affects homeowners and nonowners differently. I find that risk tolerant workers are more likely to be self-employed than are their less risk tolerant counterparts. However, net asset levels have an insignificant effect on self-employment entry once absolute risk tolerance is properly taken into account.
The absence of successful businesses owned by minorities, and by blacks in particular, is a concern for policy makers. In the third essay, I exploit detailed work history data in the NLSY79 to provide new evidence on the reasons behind the race gap in self-employment. My analysis of an "age uniform" sample of men, all of whom are observed from age 22 to age 40, reveals that racial differences in cross-sectional self-employment rates are largely due to the fact that minority workers' self-employment spells are relatively short-lived. Moreover, I find that minority workers' relatively high exit rates from self-employment are caused primarily by transitions to nonemployment. Estimates from a multinomial logit model of self-employment exits suggest that minority workers' weak attachment to the labor market prior to entering self-employment is an important determinant of their self-employment to nonemployment transitions, while lack of prior industry and self-employment experience contributes to minorities' transitions to nonself-employment.