according to the number of persons employed in the business (both part-time and full-time), and sector of economic activity was defined as the activity that is the main source of income for the business. Due to the difficulties of identifying and interviewing larger firms in the much smaller Machala and Tulcán, only firms with up to 10 employees were sampled in these cities. The survey was complemented by 24 focus groups and 10 interviews with entrepreneurs as well as workers in all four cities to allow for a greater variety of answers and a more in-depth discussion of reasons behind the observed behavior.

The sampling framework of the EMES was based on the 2004 national survey of urban micro-enterprises but the results also correspond closely to the recently completed economic census. The survey design was based on a 2004 survey sponsored by USAID under the project “Proyecto SALTO” (USAID, 2005), which collected information on close to 18,000 micro-entrepreneurs in low- and middle-income urban areas of Ecuador. Using this structure, the EMES sample was designed in such a way that sufficient observations to permit statistical analysis and hypothesis testing would be available along any of the three dimensions of firm size, sector, and city.<sup>2</sup>

# **2.2 Owner characteristics**

A large majority of entrepreneurs value the independence and flexibility of having their own business. The survey asked entrepreneurs to establish a ranking among seven different reasons for having their own business rather than being a wage employee. Figure 1 displays the percentage of firms that cite each of the reasons among the top three in their ranking. Consistent with other evidence from Latin America (see Perry et al., 2007), over 70 percent of firm owners cite the advantage of being one’s “own boss” as a top reason. Only around 30 percent of entrepreneurs mention the lack of wage employment, and only around 20 percent go into business mainly to avoid paying mandatory social security contributions (IESS). Similar sentiments were expressed in the focus groups, with an additional reason of the business being a source of employment opportunities for family members, and an endowment that can be left to children.

**Figure 1: Entrepreneurs’ reasons for having their own business**

<!-- Start of picture text --> I run my own business because...<br>I prefer to be my own boss and not depend on others<br>I can take care of children/parents while I work<br>I have flexibility in my schedule<br>A business like mine could grow in the future<br>It's too difficult to find wage employment<br>Running my own business is less boring than working as an<br>employee<br>I don't need to pay contributions to IESS<br>Women Men 0% 10% 20% 30% 40% 50% 60% 70% 80%<br><!-- End of picture text --> 2 The recently completed economic census (Censo Economico) was not available at the time of the EMES sample design; moreover, there are several methodological differences such as the fact that Censo Economico only surveyed businesses with a fixed place of establishment and did not cover most street vendors, construction workers, or taxi drivers. However, the correspondence between the EMES results and those of the economic census—for the same cities and firm sizes—is quite high for a number of characteristics, such as having a tax identification number (RUC) and the gender of the firm’s owner.

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