The returns to self-employment in South Africa : an analysis of household survey data.

Abstract

This study investigates self-employment in South Africa focusing particularly on earnmgs differences among the self-employed. A large earnings gap is present among Blacks and Whites in self-employment and the study examines how much of this earnings gap is attributable to differences in observed characteristics of the self-employed, and how much derives from differences in the returns to these observed characteristics. I estimate earnings equations using data from the September 2004 Labour Force Survey and find that variables representing individual, household and employment characteristics of the self-employed are determining part of their earnings. Using the Oaxaca-Blinder decomposition technique, I however, establish that only 55 percent of the earnings differential between Blacks and Whites in self-employment is attributable to differences in observed characteristics. The remainder of the earnings differential may reflect the effects of omitted (unobserved) characteristics, or it may reflect differences in the returns to observed characteristics. Different returns to endowments may be the results of discrimination among the self-employed, including consumer discrimination and discrimination in access to credit or product markets.