Why did self-employment increase so strongly in Germany?

Germany experienced a unique rise in the level of self-employment in the first two decades following unification. Applying the nonlinear Blinder–Oaxaca decomposition technique, we find that the main factors driving these changes in the overall level of self-employment are demographic developments, the shift towards service sector employment and a larger share of population holding a tertiary degree. While these factors explain most of the development in self-employment with employees and the overall level of self-employment in West Germany, their explanatory power is much lower for the stronger increase in solo self-employment and in self-employment in former socialist East Germany.