Drug Dealing and Legitimate Self-Employment

Theoretical models of self-employment posit that attitudes toward risk, entrepreneurial ability, and preferences for autonomy are central to the individual's decision between selfemployment 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 explore 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 represents a good 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 selfemployment 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 selfemployment 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. I interpret these results as providing evidence that low risk aversion, entrepreneurial ability, and a preference for autonomy are important determinants of self-employment. I also provide evidence against a few alternative explanations of the positive relationship between drug dealing and self-employment.