Self-employment and wage earning: Hungary during transition

We examine the earnings determinants of the self-employed and wage earners in Hungary in the mid-1990's, taking into account two forms of selection: selection into working or non-working for every individual in our sample and selection into self-employment or wage-earning jobs for workers only. Previous studies use switching regression to examine the returns to individual characteristics taking into account only selection into self-employment or wage-earning jobs. We find that the estimated returns to individual characteristics when accounting for both forms of selection differ from estimates correcting for only selection into self-employment or wage-earning jobs. We also find that the earnings determinants of the two sectors are not significantly different from each other.