Self-employment in Italy: the role of Social Security Wealth

Using a rich micro dataset drawn from administrative archives, we explore whether Social Security Wealth (SSW) is an important factor affecting the decision to become self-employed. We focus on the two main categories of self-employed professions covered by the Italian public pension system: craftsmen and shopkeepers. We use the large exogenous variation in individual expected SSW that occurred as a result of the policy reform process undertaken in Italy during the 1990s to identify the effect of this variable and we study how the probability of being self-employed or employed depends, amongst other things, on the difference in the expected SSW that accrues under the two alternative employment scenarios. Our key finding is that a higher difference in expected SSW from self-employment compared to employment has a positive effect on the probability of being self-employed and on the probability of switching to self-employment, while it has a negative effect on the probability of switching from self-employment to employment. We also study how these effects vary with age and, in general, we find that the effect is, in absolute terms, stronger at younger and older ages.