The making of entrepreneurs in Germany

"This paper uses a state of the art three-stage technique to identify the characteristics of the self-employed immigrant and native men in Germany and to understand their underlying drive into self-employment. Employing data from the German Socioeconomic Panel 2000 release we find that self-employment is not significantly affected by exposure to Germany or by human capital. But this choice has a very strong intergenerational link and it is also related to homeownership and financial worries. While individuals are strongly pulled into self-employment if it offers higher earnings, immigrants are additionally pushed into self-employment when they feel discriminated. Married immigrants are more likely to go into self-employment, but less likely when they have young children. Immigrants living with foreign passports in ethnic households are more likely self-employed than native Germans. The earnings of self-employed men increase with exposure to Germany, hours worked and occupational prestige; they decrease with high regional unemployment to vacancies ratios. Everything else equal, the earnings of self-employed Germans are not much different from the earnings of the self-employed immigr