Structural Transformation and the Unequal Returns to Self-Employment in India

This paper re-examines the place of self-employment within the context of structural transformation in India, with a focus on self-employed earnings across different industrial sectors. It uses nationally representative data from the Periodic Labour Force Survey (2018–19) and applies a selectivity-corrected approach to estimate sector-specific differences in returns among self-employed workers. The results show clear heterogeneity in both the determinants and levels of earnings across sectors. Non-business services have become the main absorber of low-educated, low-return self-employed workers, while manufacturing self-employment remains largely necessity-driven. In contrast, business services form a small, high-return segment where tertiary education and urban location are strongly rewarded. Gender disparities are most evident in manufacturing, where women earn substantially less than men. Policies must focus on improving returns in low-productivity sectors and widening access to more dynamic, high-return forms of self-employment.