The Role of Job Satisfaction in Transitions into Self-Employment

Abstract

Self‐employment is often seen as an attractive alternative to wage employment, despite lower welfare protection, higher risks, and more required effort than in the latter. It is then important to investigate why individuals choose self‐employment. In addition to potential earnings, other factors may be considered, including displacement, uncertainty, unemployment risk, and dissatisfaction. Building on a job quits model, we propose an empirical representation of transitions to self‐employment, which includes subjective evaluations of pecuniary and nonpecuniary satisfaction on the previous job. Additionally, we focus on the dynamics of job satisfaction, highlighting the role played by shocks in subjective evaluations.