employment earnings penalties or premiums in low income countries outside of Latin America. Our paper contributes to the literature on informal and self-employment wage penalties or premiums by estimating and comparing these earnings differentials for a wider range of developing and high income countries than currently exists in the literature.

# **III. Data**

The data source for this paper is a database of micro-level household surveys harmonized by the Development Economics Research Group of the World Bank, the International Income Distribution Database (I2D2).<sup>4</sup> This database consists of nationally representative labor force surveys, budget surveys or living standards measurement surveys. In many cases, the surveys provide information on the earnings of the self-employed as well as of wage and salary employees, in addition to other relevant information on individual socioeconomic characteristics. The data include three sets of consistently defined and coded variables: (i) demographic variables, (ii) education variables, and (iii) labor force variables.

Not all variables are available in all countries and years. We limit our analysis, to surveys where we can identify whether the worker is self-employed or a wage and salary employee, also where data is collected on the earnings of both the self-employed and wage and salaried workers.<sup>5</sup> In most countries, data are available for multiple years. Our full sample consists of 347 surveys (country/year combinations), representing 73 countries, from 1980 to 2013. Within each country, we limit our samples to the working age population, 15-65 years old. The full country–year combinations available for our analysis, as well as the estimated earnings premiums(+)/penalties(-) for each country/year observation, are listed in the appendix in table A1.

We begin by examining the earnings differentials between self-employed workers and all wage and salaried employees. Self-employed workers include both own-account workers and employers. We are able to examine differences between self-employed workers and employees using 347 household surveys from 73 countries. 62% of these surveys are from Latin America, and over 90% of these surveys are from either Latin America or Europe and Central Asia.

We recognize that within the self-employed there may be large differences between employers, professional or technical own-account workers (i.e. lawyers, doctors, accountants, etc.) and non-professional own-account workers (unskilled self-employed). Therefore, where possible, we separate self-employed workers into two categories: (i) nonprofessional own-account workers and (ii) employers and own-account professionals. We are able to examine earnings differences between these two types of self-employed workers

> 4 The database is an updated version of that described in Montenegro and Hirn (2009). Version 4 of the I2D2, which was released in October 2013, was used for this study.

> 5 Self-employed workers include those who self-identify as either an own account worker or an owner/employer.  We use the ILO definition of own account workers as “workers who, working on their own account or with one or more partners, hold the type of job defined as a self- employed job, and have not engaged on a continuous basis any employees to work for them during the reference period”

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