Katz, Eliakim||Campbell, Carl M., III
Ph.D. (Doctor of Philosophy)
Department of Economics
Employment in foreign countries||Self-employed||Immigrants--Economic conditions
This study is a theoretical contribution to the literature concerning asymmetric information in the labor market and its impact on the occupational choice pattern of individuals. In particular, this dissertation combines the presence of asymmetric information in the labor market with individuals' attitudes toward risk. We show that immigrants to a rich country face disadvantage in the labor market due to the presence of asymmetric information. Potential employers evaluate all immigrants, at least initially, in a different way as compared to natives. There is imperfect information about immigrants. Employers in the host country offer them a wage corresponding to the mean productivity of the entire immigrant cohort. The immigrant with the mean productivity receives the value of her true product and those with lower than mean productivity receive more. Immigrants with higher than average skill levels lose from the labor market situation. Consequently, these immigrants may choose alternative sources of earnings to compensate for the loss. We point out that self-employment is such an alternative. We also consider the occupational preference of natives in the same labor market. We construct two different models to illustrate the pattern of occupational choice among immigrants and natives. The first model assumes that no unskilled immigrant or native chooses self-employment. The second model relaxes this assumption. In both models, a larger proportion of skilled immigrants choose self-employment as compared to other groups. In particular, according to the first model, the rate of self-employment of skilled immigrants exceeds that of skilled natives. Both skilled and unskilled natives and immigrants can choose self-employment. In this case also, the self-employment rate for skilled immigrants exceeds that of skilled natives. All individuals (immigrants and natives) are equally risk averse and they equate expected utilities from employment and self-employment. At the margin, the critical degree of relative risk aversion for all such individuals is determined. Based on this critical level, some individuals are employed and the rest self-employed. We show in the basic model and in the extension that the critical relative risk aversion is greatest among skilled immigrants. Finally, mean income of immigrants and natives is compared. Immigrants on an average earn more than natives. Higher mean immigrant income is associated with a higher temporal (income involving random risk) variance of income. The cross-sectional (non-random income, such as wage) income variance for immigrants, however, is lower than that of natives.
Kar, Saibal, "Asymmetric information, migration, and self-employment" (2002). Graduate Research Theses & Dissertations. 1559.
ix, 187 pages
Northern Illinois University
Rights Statement 2
NIU theses are protected by copyright. They may be viewed from Huskie Commons for any purpose, but reproduction or distribution in any format is prohibited without the written permission of the authors.