International Migration and the Choice of Self-employment

This thesis explores three notions related to the choice of self-employment as a labor market strategy among international migrants. The choice of the topic is motivated by the presumption that self-employment, on top if international labor migration, facilitates the reduction of the inefficiency of the international division of labor. In search of proof for this general hypothesis, the thesis contributes to exiting literature by merging two strands of work. On one hand, it relies on the concepts and methods related to the economics of migration. On the other hand, it takes advantage of the developments in the field of self-employment economics. In light of the gaps identified in existing literature, three operational hypotheses are formulated and tested in three subsequent chapters of the thesis. The first empirical chapter aims to answer the question whether immigrant self-employment is an income-maximizing choice. As simple as it seems, to the best of the author’s knowledge, such a hypothesis has not been empirically tested before. By means of Propensity Score Matching we find statistical twins in the migrant and non-migrant groups, what allows to obtain reliable estimates of the earnings gap. The results show that, indeed, immigrant self-employment is more profitable than employment in the country of origin. Furthermore, it is also proven that it may be even more profitable than wage-employment at the destination. Given the results of the first empirical analysis, the subsequent chapter tests whether immigrant self-employment is driven by labor market discrimination, i.e. whether it is a remedy for the internal labor market imperfections in the host country. This is found to be true, yet only when immigrants' earnings from self-employment actually exceed those from wage-employment. Additionally, the findings of this chapter suggest that the extent of labor market discrimination of immigrants highly depends on the location and the group of reference considered for the analysis of discriminatory wage differences. The third operational hypothesis deals with ethnic economies as an environment which enables immigrants to succeed in business in a foreign country. Existing literature emphasizes the beneficial role of ethnic economies. The contribution of this thesis is that it also explores whether ethnic economies are not sources of business competition at the same time. The hypothesis formulated for this analysis states that ethnic competition decreases, while ethnic complementarity increases the returns to business activity. The general finding of is that ethnic competition may either be benign or detrimental to profits, depending on the extent of ethnic market saturation. As far as ethnic complementarity is concerned, the conducted research shows that, as such, it does not significantly affect returns to ethnic entrepreneurship, but that the relative wealth of one's co-ethnics does have a positive effect on the profitability of local ethnic businesses. The studies conducted within the scope this doctoral research affirm the general hypothesis of this thesis. From this perspective the main conclusions of this thesis are the following: by reallocating to markets where one's skills, abilities or knowledge are relatively scarce, or add to the diversity of supplied products or services, individuals may experience significant income gains; the profitability of immigrant self-employment may not only allow to overcome the labor market inefficiencies related to the international division of labor, but also to the internal market divide; the multilateral benefits of immigrant self-employment can be obtained by letting migrants cluster and take advantage of their cultural and social capital. For both methodological and conceptual reasons the research focuses predominantly on Puerto Rican migration to the US. However, each empirical analysis provides a study of external validity of the obtained results.