When You Can't Afford to Wait for a Job: The Role of Time Discounting for Own-Account Workers in Developing Countries

Thiago Scarelli and David Margolis
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Thiago Scarelli: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: Frictional labor markets impose a fundamental trade-off: individuals may work on their own at any time, but can only take a potentially better-paid wage job after spending some time looking for it, suggesting that intertemporal considerations affect how people choose their occupation. We formalize this intuition under the job search framework and show that a sufficiently high subjective discount rate can justify the choice for own-account work even when it pays less than wage work. With this simple model, we estimate the lowest discount rate that is consistent with the occupational choice of urban own-account workers in Brazil. We find that at least 65 percent of those workers appear to discount the future at rates superior to those available in the formal credit market, which suggests constrained occupational choice.Finally, we show that our estimated lower bound of the time preference is positively associated with food, clothing, and housing deprivation.

Date: 2025
New Economics Papers: this item is included in nep-iue
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Published in Economic Development and Cultural Change, In press, ⟨10.7910/DVN/MJCKFJ⟩

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Related works:
Working Paper: When You Can't Afford to Wait for a Job: The Role of Time Discounting for Own-Account Workers in Developing Countries (2025)
Working Paper: When You Can't Afford to Wait for a Job: The Role of Time Discounting for Own-Account Workers in Developing Countries (2023)
Working Paper: When You Can't Afford to Wait for a Job: The Role of Time Discounting for Own-Account Workers in Developing Countries (2022)
Working Paper: When You Can't Afford to Wait for a Job: The Role of Time Discounting for Own-Account Workers in Developing Countries (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04866675

DOI: 10.7910/DVN/MJCKFJ

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