International labor migration, asymmetric information and occupational choice

We study the effect of asymmetric information in the labor market of a country on the occupational choice pattern of immigrants vis-à-vis natives. The choice is limited to self-employment and paid employment. The study is motivated by empirical observations that regular and irregular immigrants in many countries are often over-represented in entrepreneurship/small business despite substantial initial disadvantages. There are also evidences that the immigrants catch up with the native income level within one and half decades of their presence in the foreign land. We try to identify the reasons and provide a formal explanation of how the initial disadvantage turns out to be a prospect in disguise. In particular, we show that a larger number of skilled workers from a mixed cohort of immigrants tend to take up riskier self-employment compared to skilled natives. This explains a higher average income with high temporal income variability for the immigrant group, with consequent implications for income convergence.