Boon or Bust? Sex Differences in Returns to Earnings for Self-Employment

Michelle Budig, University of Massachusetts

While sex differences in participation in self-employment are well documented, sex differences in the effects of self-employment on earnings are not. Does self-employment increase or decrease workers' earnings? Do the returns of self-employment to earnings differ by sex? If so, what mechanisms can explain this difference? Using data from the National Longitudinal Survey of Youth (1979-98), I examine how returns to earnings for self-employment vary by sex, family status, and occupation. Fixed effect models include controls for human capital, occupational characteristics, and industrial/occupational sex segregation. Findings indicate that childless professional women receive an equivalent return to earnings for self-employment compared with professionally employed men. However, while all men benefit from self-employment, all mothers, and all women in non-professional occupations, have negative returns to self-employment. Findings are consistent with arguments that women use self-employment to balance work and family demands and this amenity may compensate for the negative returns mothers receive.