Planning for Self-Employment at the Beginning of a Market Economy: Evidence from Individual Data of East German Workers

Not available in German. We investigate the plans of individual workers concerning future self-employment in the former German Democratic Republic shortly before the economic, monetary and social union in June/July 1990. Our data base is the Socio-Economic Panel East. We find that the desire to become an entrepreneur is basically determined by individual and household characteristics, including income and asset indicators, and not as much by the current job situation of the individual. The work experience attained in the socialist economy seems to be irrelevant for the decision to become self-employed in a market economy. Furthermore, we find evidence of barriers to entry which may come from capital market constraints and institutional restrictions.We also present an estimation of the determinants of the probability of being self-employed in Summer 1990. Due to institutional restrictions we find only a few characteristics to be important. For estimation, we use the binary and the ordinal logit model. The corresponding stochastic assumptions are tested extensively using pseudo-Lagrange multiplier tests against omitted variables, non-linearity, asymmetry of distribution, and heteroscedasticity.