Why are the self-employed happier with their jobs than employees?

In the defence of small enterprises
30th August 2016
Entrepreneurship: Job satisfaction links with life satisfaction
2nd February 2017

Why are the self-employed happier with their jobs than employees?

Nowadays, most people in the so-called "western" countries work as employees for an organisation. Some would even say that people are no longer identified by what they do, but for whom they work. Anyone who has participated in a conference with the classic name-badges knows the feeling of people looking at someone's badge to see which organisation they represent when they are introduced to each other. Paid employees in some industries can see their annual income rise on an annual basis, and some of the highest personnel of some global organisation are part of the 1 percent of highest incomes.
"On average, self-employed individuals work 10 hours longer, earn €1,900 less, and show more income inequality (22.01 against 9.46 in terms of standard deviation for annual earnings) than paid employees."

Millán, José María, et al., 2013

Still, the literature is filled with evidence that self-employed people are substantially more satisfied with their jobs than paid employees. Why is that?

One of the most sighted reasons related to the cultural concept of "being one’s own boss". Self-employed individuals are more likely than paid employees to report that they are more satisfied with their jobs. This probably related to the independence and flexibility that they can enjoy as they are not following the orders of somebody else; they are their own boss. How far one can take this line of reasoning and attempt to explain the effect is debatable. Most likely there is a strong link between the belief in the idea of "being one's own boss" and the choice of self-employment. It is also likely that it is more geographically linked to local cultures that a universal effect. South Asian and South East Asian for example, economies are known to have a high percentage of family businesses as part of the economy (e.g. 70 percent of the public listed companies in Malaysia are family owned), where the sons and daughters are less likely to start their own companies, but rather join the family business.

Self-employed people when identified as entrepreneurs they are being seen as "risk-seeking" individuals (see a previous article on the distinction between the two concepts). On the other hand, paid employees are, generally speaking, risk-averse people. What matters the most to the paid employees are job security and pay, "followed by use of initiative, the work itself and hours of work" (Saridakis, G. and Cooper, C., 2016, p11). It maybe even the case that the relationship between risk and job satisfaction is not negative for both groups as the literature typically assumes. It may be the case that there is a certain "thrill of risk" involved for the self-employed "entrepreneur", which wouldn't be that surprising considering that a typical dictionary definition of an entrepreneur is “one who organizes, manages, and assumes the risks of a business or enterprise.”

The distinction between the self-employed "opportunity entrepreneur" and the self-employed "necessity entrepreneur" is as important as the distinction between the self-employed and the paid employee in many cases. For example, a consistent finding is that previously unemployed people who become entrepreneurs show similarities in their job satisfaction with paid employees who enter employment after a period of unemployment; they are both less satisfied.
“Another consistent finding among both self-employed individuals and employees is that those who have experienced recent spells of unemployment tend to be less satisfied with their jobs both in terms of type of work and job security”.

Millán, José María, et al., 2013

Working hours is a quite interesting issue. It is interesting because it has a reverse effect on self-employed than it has on employees; for the first group it increases job satisfaction, while for the second it reduces it. The effect can be possibly explained since working more is a free choice for the self-employed and likely to have increased business effectiveness or returns, while it might be rather imposed on the employee.

Thus, the increased satisfaction of the self-employed with their jobs is not based directly on income generation and other material outcomes, but on other issues such as creating something new, and finding solutions to big or small problems. Some of the entrepreneurs in the video "Tell us your entrepreneur story" in this post describe their motivation to start their own business using abstract words such as journey, passion, challenge, persistence, believe, courage, and sustainability.
“Self-employed people do not reap more utility from their work so much because the material outcomes are different; if anything, the self-employed e.g. earn lower wages than employees.”

Benz, M. and Frey, B.S., 2004


References

Bradley, D.E. and Roberts, J.A., 2004. Self‐employment and job satisfaction: investigating the role of self‐efficacy, depression, and seniority. Journal of Small Business Management, 42(1), pp.37-58.

Millán, J.M., Hessels, J., Thurik, R. and Aguado, R., 2013. Determinants of job satisfaction: a European comparison of self-employed and paid employees. Small business economics, 40(3), pp.651-670

Saridakis, G. and Cooper, C. eds., 2016. Research handbook on employee turnover. Edward Elgar Publishing.

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