Are transitions to self-employment beneficial?

Abstract

Much research has been conducted studying entry into self-employment and the corresponding rewards and consequences of self-employment on earnings. The literature finds mixed results regarding whether workers enter self-employment to maximize their pecuniary or their non-pecuniary benefits. This paper suggests that whether workers are able to increase their pecuniary or non-pecuniary benefits in self-employment depends on their motivations for entering self-employment in the first place. This study uses longitudinal NSF SESTAT data on over 28,000 scientists and engineers to track employment changes and changes in work outcomes over time for the same individuals. The research examines changes in pecuniary and non-pecuniary work outcomes when wage workers transition to self-employment, compared to those who do not change employers, as well as to those who change employers but do not transition to self-employment. This allows a deeper look at the implications of different types of mobility on work outcomes. The findings show that in general those who transition to self-employment experience improvements in their non-pecuniary outcomes but not in their pecuniary outcomes, however the results do differ depending on the motivation for moving. Using job satisfaction as a proxy measure for non-pecuniary benefits, this paper finds that while those who enter self-employment from wage work do generally improve their job satisfaction, job satisfaction rises for all movers, not just for those who enter self-employment.