Self-employment and the earnings of immigrants

We examine the question of the economic returns to immigrants engaged in self-employment. Contradictory, reports in the literature concerning the superior or inferior earnings of the self-employed relative to wage/salaried workers are related to the choice of functional form of the earnings equation. Based on samples of four entrepreneurial immigrants plus control samples of Blacks and Whites from the 1980 Public Use Microdata Sample, we find large differences in the net effect of self-employment, depending on the use of a linear (absolute dollar values) or loglinear (relative returns) form. We examine various explanations for the discrepancy and identify the role of outliers as significant. The loglinear form fits the data better bur at the cost of obliterating substantively important information, namely the preponderance of the self-employed among positive outliers. Effects of excluding the latter from the linear form and the theoretical and policy implications of alternative specifications of the earnings equation are examined.