Discrimination in a search and matching model with self-employment

In many urban African labour markets, women outnumber men in self-employment, even though gender earnings gaps are larger for the self-employed than the wage-employed. In this paper, we suggest an explanation for this pattern using a search and matching model that allows for individual heterogeneity and participation in both self- and wage-employment as well as discrimination against women in the wage sector. We show that discrimination in wage-employment can generate gender earnings gaps across all sectors of the economy, even if the underlying ability distributions for women and men are identical. This result arises because discrimination creates extra frictions for women, making it harder for them to select occupations according to their comparative advantage. Moreover, the earnings gaps that arise turn out to be larger for the self-employed, even though it is not the self-employment sector that is characterised by discrimination. Policy makers may therefore need to target the wage sector in order to address gender inequality for the self-employed.