It happens! www.tandfonline.com/doi/full/10....

12\ I would like to extend my gratitude to all my colleagues who provided feedback on earlier versions of this work. Finally, to the anonymous referees whose valuable insights helped shape this final version -- if you are reading this, thank you!

11\ Why this matters

This result challenges some narratives about entrepreneurship in developing countries by presenting evidence that a large majority of own-account workers appear to be people making constrained choices in a context of frictional labour markets and immediate financial pressures.

10\ Intuitively, for workers facing urgent consumption needs without access to credit, immediate (though lower) income becomes the only viable option.

9\ That is how we conclude that 1/3 of the Brazilian own-account workers appear to be taking their first-best economic choice. By contrast, twice as many seem to be favouring the immediate gains from own-account work at the expense of much larger gains in terms of future wages.

8\ This comparison tells us how intense the constraints faced by own-account workers are, as it provides the lowest level of financial urgency (or discount rate) that explains the choices observed in the data. We then compare it with the discount rates available in the credit market.

7\ Intuitively, we assume people compare the flow of earnings from their own-account work with a (potentially higher) flow of earnings from a wage employment that would start sometime later in the future.

6\ Also, finding a job takes time! So, we need an estimation of how long it takes for people to find a wage position. The time dimension is fundamental here since taking wages at face value would exaggerate the relative gains of wage employment.

5\ First, people are different in many dimensions, so we need to adjust for that when we estimate the potential (counterfactual) wages of own-account workers.

4\ How do we answer this question?

In simple terms, we present a comparison between the economic returns of own-account work versus wage work, taking into consideration a few complications in the process.

3\ In practice, it is hard to distinguish whether most own-account workers are motivated by the opportunities or constrained by the circumstances. This paper proposes one way of doing that.

2\ What is the paper about?

Own-account work represents a large chunk of the labour market in developing countries, and Brazil is no exception. While some people stress the risks associated with these occupations, others highlight their positive aspects.