Testing Hypotheses of Immigrant Self-Employment

Abstract

This paper attempts to explain high rates of immigrant self-employment, relative to native workers. Three hypotheses are tested. Estimates of a two-sector model of earnings support the home-country self-employment hypothesis: immigrants from countries with larger self-employed sectors have higher self-employment rates. The data also support the taxavoidance hypothesis. These two hypotheses explain 62 percent of the immigrant-native self-employment differential. There is little support for the enclave hypothesis. Enclaves do, however, affect sectoral earnings, in ways that are consistent with compensating differentials for enclave life, or negative selection into enclaves.

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