Self-employment Rents: Evidence from Job Satisfaction Scores

Abstract

AbstractPrevious studies have pointed to the existence of barriers at the entry ofself-employed sectors, such as liquidity constraints. In many countries, poli-cies are directed toward removing these barriers in order to promote en-trepreneurial activity. This paper examines whether such barriers exist byexamining the amount of rent enjoyed by self-employed workers; if there areno barriers between the self-employed sector and the salary/wage sector, self-employed workers should not enjoy rents. Examination of the rent associatedwith self-employment, however, cannot simply be accomplished by comparingthe incomes of self-employed and salary/wage workers. This is because self-employed workers may enjoy higher utility due to their work environment,with such benefits as autonomy and flexibility of work schedules. To over-come the difficulty of measuring self-employment rents, I use self-reported jobsatisfaction from the National Longitudinal Survey of Youth 79 (NLSY79)to capture workers’ overall satisfaction with their jobs. The results robustlyindicate that self-employed workers are more satisfied with their jobs thansalary/wage workers, even after allowing for the time-invariant individualheterogeneity in their reported job satisfaction. This result suggests thatthere are barriers at the entry into self-employment and that self-employedworkers enjoy rents.JEL Classification: J23; J31Keywords: Self-Employment; Job Satisfaction