Essays on self-employment in Africa

Informal sectors in developing countries provide a substantial pool of jobs for some of the world's poorest people. Self-employment comprises a large portion of the job opportunities available to individuals working in these sectors. This thesis is concerned with the factors that drive people to become self-employed and determine their welfare as an entrepreneur, with a special emphasis on differences between women and men. In Chapter 1, we explain the Ghanaian context to which this thesis relates and outline the contribution of each main chapter and the common themes. In Chapters 2 and 3, we examine the trade-off between domestic work, such as caring for children and household chores, and market work. In Chapter 2, we consider the extent to which individuals are able to substitute between these two tasks to adjust to short-run variation in domestic productivity brought about by outages in electricity. We find that self-employed workers adjust non-monotonically to changes in domestic productivity, initially increasing their levels of domestic work to preserve consumption levels, but then substituting towards market work when power outages become more severe. We show that this relationship is heterogeneous by sex, and build a model of time allocation to demonstrate the theoretical mechanisms behind these results. In Chapter 3 we examine whether the factors that drive occupational selection differ by sex. It is often argued that women choose jobs in self-employment because this allows them to balance income-generation with childcare and other domestic work. We test the plausibility of this claim and its implications for labour market outcomes. First, we use a simple model of occupational choice to clarify our ideas about which notions of 'job flexibility' are important for the Ghanaian context. Second, we examine whether differential selection forces between women and men may explain the raw sex earnings gaps that appear to persist in various sectors, using a multinomial logit model to adjust for non-random occupational selection. We find that controlling for selection substantially widens the earnings gap amongst the self-employed, but shrinks it for the wage-employed. Third, we interrogate our selection equations and show that domestic obligations increase women's likelihood of entering low-input self-employment jobs more than men. We assess the importance of endogeneity using a maximum simulated likelihood estimator to couch the idea that selection on observables can be used as a guide for selection on unobservables, focussing on the discrete choice made over occupation. In Chapter 4, we turn to theory to try and resolve some of the empirical puzzles that remain from Chapter 3. In particular, we attempt to reconcile the fact that female participation in self-employment is so high even when the average differences in potential earnings are large. To do this, we construct a search model, which allows for individual heterogeneity and participation in both self- and wage-employment, as well as discrimination against female workers in the wage sector. We numerically solve and simulate this model, using calibrations from the existing literature, to explain a set of stylised facts generated from a longitudinal dataset of workers in urban Ghana. We show that wage sector discrimination leads to average earnings gaps in \emph{all} sectors of the economy, even if the underlying ability distribution is the same for both sexes. We also conduct a series of experiments to examine how women and men may be affected differently by government policy. Finally, in Chapter 5 we connect our main findings to policy and make some suggestions for future work.