"Drug Dealing and Legitimate Self-Employment"
BY: ROBERT W. FAIRLIE
University of California at Santa Cruz
Joint Center for Poverty Research, Northwestern
University
Joint Center for Policy Research, University of
Chicago
Paper ID: UCSC Department of Economics Working Paper No. 453
Date: November 1999
Contact: ROBERT W. FAIRLIE
Email: Mailto:rfairlie at cats.ucsc.edu
Postal: University of California at Santa Cruz
Social Sciences I
Santa Cruz, CA 95064 USA
Phone: (408)459-3332
Fax: (408)459-5000
Paper Requests:
Send a check for $6 payable to "UC Regents" to Mr. Jeremy
Miller, Department of Economics, 217 Social Sciences I,
University of California, Santa Cruz, CA 95064.
ABSTRACT:
Theoretical models of self-employment posit that attitudes
toward risk, entrepreneurial ability, and preferences for
autonomy are central to the individual's decision between
self-employment and wage/salary work. None of the studies in the
rapidly growing empirical literature on self-employment,
however, have been able to test whether these factors are
important determinants of self-employment. I provide indirect
evidence on this hypothesis by examining the relationship
between drug dealing and legitimate self-employment. A review of
ethnographic studies in the criminology literature indicates
that drug dealing may represent a useful proxy for low risk
aversion, entrepreneurial ability, and a preference for
autonomy. The 1980 wave of the National Longitudinal Survey of
Youth (NLSY) contained a special section on participation in
illegal activities, including questions on selling marijuana and
other "hard" drugs. I use the answers to these questions and
data from subsequent years of the NLSY to examine the
relationship between drug dealing as a youth and legitimate
self-employment in later years. Using various definitions of
drug dealing and specifications of the econometric model, I find
that drug dealers are 11 to 21 percent more likely to choose
self-employment than non drug dealers, all else equal. I also
find that drug dealers who sold more frequently, used drugs less
frequently, or reported receiving income from drug dealing are
more likely to choose self-employment than other drug dealers.
After ruling out a few alternative explanations, I interpret
these results as providing indirect evidence that risk aversion,
entrepreneurial ability, and preferences for autonomy are
important determinants of self-employment.
JEL Classification: J23, K42