Education, social identity and self-employment over time: evidence from a developing country

While the extant literature suggests that an individual's occupational choice depends on the level of economic development, little is known about how the dynamics of education and social identity impact self-employment choice over time in a developing country setting. The pseudo-panel regression results presented here suggest that higher education decreases the likelihood of individuals' choice of self-employment over time in India, but increases it in most developed cohorts. Such transitional dynamics are more prominent amongst individuals who belong to historically determined backward classes. Furthermore, the results suggest sectoral differences in self-employment choice-individuals with higher education and wealth have a greater likelihood of transiting into self-employment over time in agriculture while similar individuals in non-agriculture exit self-employment. In both sectors, however, education moderates the impact of social identity on self-employment choice. The paper underscores the need for policy shifts towards entrepreneurship along the path of economic development. Plain English Summary University education helps overcome social barriers to self-employment in India. While it reduces the transition into self-employment over time, educated individuals are more likely to move back into self-employment in the most developed cohorts. We examine the occupational dynamics over ten years using large-scale databases by tracking self-employment in cohorts of individuals across India. The results suggest that university education enables individuals from socially backward classes to overcome barriers to self-employment in both non-agricultural and agricultural sectors. Although university education decreases the likelihood of self-employment over time, it increases self-employment in the most developed cohorts. The paper suggests that public policy should focus on facilitating industrial development in the initial stages of development as individuals are motivated to invest in professional human capital during these periods while encouraging entrepreneurial activities when a more developed economy can provide opportunities for greater returns in self-employment.