In this paper we analyze the factors that influence transitions into selfemployment in Spain using a discrete time duration model and, given the evidence of lower earnings among self-employees, we further explain the earnings differential between employees and self-employees using an Oaxaca-Blinder approach. The analysis is based on the European Community Household Panel (ECPH) for 1994-2001. According to our results, the factors explaining the transition into self-employment differ depending on the worker’s previous status in the labor market. Additionally, we show that the observed earnings differential between self- and paid employees is a consequence of the selectivity bias into each labor status.

Key words: self-employment, longitudinal data, duration model, earnings differential.
JEL Classification: J82, J16, L26.