The Native‐Immigrant Income Gap among the Self‐Employed in Sweden
| Published date | 01 August 2011 |
| DOI | http://doi.org/10.1111/j.1468-2435.2009.00510.x |
| Date | 01 August 2011 |
The Native-Immigrant Income Gap
among the Self-Employed in Sweden
Pernilla Andersson Joona*
ABSTRACT
During recent years we have observed that non-western immigrants are
overrepresented among the self-employed in Sweden. A reason for this
might be the difficulties faced by immigrants in the labour market. The
unemployment rate among non-western immigrants in Sweden is higher
than among natives with similar human capital characteristics. While this
is a well-established result, we do not know much about how self-
employed immigrants perform economically compared to their native
counterparts. The purpose of this paper is to describe and analyse the
incomes of self-employed immigrants and natives in Sweden. We will also
discuss possible explanations for the income gap we find. We use Swedish
register data for the period 1998 to 2002 and the population studied con-
sists of individuals who have been continuously self-employed during this
period. By performing the analysis on this group of self-employed we get a
measure of the difference among the long-term self-employed. The
outcome of interest is the average income over the period. Income regres-
sions are estimated using both OLS and quantile regressions. We find that
self-employed immigrants receive significantly lower incomes than their
native counterparts when controlling for individual characteristics, industry
and start-up year of the firm. The income gap is larger for non-western
immigrants than for western immigrants. Quantile regressions show that
the native-immigrant income gap is smaller at the top than at the bottom
of the income distribution. Several possible explanations for the native-
immigrant income gap are discussed. One possible explanation is that
immigrants have a lower reservation wage and accepts staying in business
receiving a lower income than comparable natives. Another explanation
might be that there is discrimination against self-employed immigrants that
will lead to lower incomes. There can be consumer discrimination or dis-
crimination from banks and real estate owners.
* Swedish Institute for Social Research, Stockholm University.
2009 The Author
International Migration 2009 IOM Published by Blackwell Publishing Ltd.,
International Migration Vol. 49 (4) 2011 9600 Garsington Road, Oxford OX4 2DQ, UK,
ISSN 0020-7985 and 350 Main Street, Malden, MA 02148, USA.
doi:10.1111/j.1468-2435.2009.00510.x
MIGRATION
Edited by Elzbieta Gozdziak, Georgetown University
INTRODUCTION
The situation for non-western immigrants who have immigrated to Sweden dur-
ing the last 20 years is often discussed in the media and in the political debate
in Sweden. Unemployment is substantially higher than among native born indi-
viduals, holding constant for differences in human capital characteristics.
Employment differences appear to be larger than wage differentials. Edin and
A
˚slund find a 55 percentage income gap in annual income between natives and
immigrants from non-Organization of Economic CD (OECD) countries when
people with zero income are included and controlling for standard human capi-
tal characteristics (2001). Using the log of monthly income, the gap is reduced
to 12 per cent. This type of results has lead to the conclusion that the largest
obstacles for non-western immigrants in the Swedish labour market, is to get
employed. Additional evidence of this sort is found in a recent study that uses
so called correspondence testing (Carlsson and Rooth, 2006).
1
They show that
there is discrimination in the hiring of new employees in the Swedish labour
market.
Another characteristic of the Swedish labour market is that non-western
immigrants, in particular immigrants born in Asia, are self-employed to a higher
extent than natives. This is not unique to the Swedish labour market and several
studies for other countries have found a similar pattern and try to explain it
(e.g., Moore, 1983; Borjas, 1986; Yuengert, 1995; Fairlie and Meyer, 1996;
Clark and Drinkwater, 2000; Blume Jensen et al., 2003; and Dustmann and
Fabbri, 2005). In 1998, among the employed in Sweden, aged between 24 and
64 years old, about eight per cent of those born in Sweden, and, 11 per cent of
non-western immigrants were self-employed. The group of non-western immi-
grants is heterogeneous and a further division by birth region reveals that only
four per cent of the employed immigrants from South America were self-
employed compared to 30 per cent of the employed immigrants from Turkey.
Among immigrants from Iran and Iraq, 18 and 17 per cent, respectively, were
self-employed. In other countries it has been found that Hispanics and immi-
grants from South America are less likely than natives to be self-employed,
while immigrants from Asia are more likely than natives to be self-employed.
Some examples are Hammarstedt (2001, 2004) and Andersson and Wadensjo
¨
(2004a) for Sweden; Dohlman (2001), Wadensjo
¨and Orrje (2002) and Anders-
son and Wadensjo
¨(2004b) for Denmark; Clark and Drinkwater (2000) and
Dustmann and Fabbri (2005) for Britain; Lofstrom and Wang (2006) for the
U.S. See also Blanchflower (2004) for an overview.
What are the explanations discussed in the literature for the differences in
self-employment rates between natives and immigrants? It has been argued that
self-employment is a way of escaping unemployment. The relatively higher unem-
ployment rates among immigrants and the difficulties of getting hired at a regular
job makes them more likely to choose self-employment. This has been called the
disadvantage hypothesis (Moore, 1983). A second explanation for the differences
in the self-employment rates is that there are differences in the self-employment
The native-immigrant gap in self-employment income 119
2009 The Author. International Migration 2009 IOM
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