Self-Employment In The Global Economy
This paper studies the effects of foreign competition on self-employment levels. The authors begin by pointing out a previously unknown fact: the greater the exposure to foreign competition, the smaller the fraction of self-employed people. This fact holds across very different countries, across relatively similar countries like European Union members, and across industries within the United States. They develop a model where heterogeneous agents select themselves into being either employees or self-employed in the spirit of Lucas (1978). This, in turn, translates into intra-industry firm heterogeneity as in Melitz (2003).