One of the major differences between developed and developing countries is the proportion of the self-employed population. Generally it is observed that higher self-employment is associated with lower level of economic development of the country. Peoples are said to be self-employed, if they run their own enterprises, with or without hiring additional labour. Due to lack of employment opportunities in a developing country, people prefer to go in for self-employment. In general, self-employment is attractive for its flexible working hour and independence. But it also demands more responsibility and more physical and mental involvement in the job. Managerial ability and probability of detection for tax evasion have positive impact on self-employment. On the other hand, degree of risk aversion has inverse relation to the choice of self-employment. Due to absence of economies of scale and lack of trained entrepreneurial skill, most of the self-employed units are characterized by low productivity. But productivity also depends on the characteristics of self-employment job. For example, an individual more dedicated to his self-employment can be more productive than a person who adopts self-employment due to unavailability of wage-employment. Economic development is expected to be lower in an economy with high self-employment. From the figure, it is clear that higher growth of self-employment leads to lower growth in Gross Domestic Product (GDP).Figure: Cross Country Comparison of growth of self-employment (GSN) and growth of GDP (GGDP), 2002-06
 Text box: ggdp
     Source: World Economic Outlook 2007 and International Labour Organization.
Since employment and productivity have important influence on growth path of an economy, employment generation demands special attention of the policy makers, especially in developing countries. In a country like India, it is very hard to generate sufficient employment opportunity in formal/organized sector owing to infrastructure and budget constraints. Thus, government has an alternative to promote self-employment, which is in any respect is better than un-employment- a fire-bound problem in India. To promote self-employment, government needs to take measures like providing adequate credit facility, proper training, creation of market, improvement of infrastructure etc. Hence the reality for the developing country is that when first best is not feasible, it has to go for second best option.