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Self-Employment Rents : Evidence from Job Satisfaction Scores

  • Kawaguchi, Daiji

Previous studies have pointed to the existence of barriers at the entry of self-employed sectors, such as liquidity constraints. In many countries, policies are directed toward removing these barriers in order to promote entrepreneurial activity. This paper examines whether such barriers exist by examining the amount of rent enjoyed by self-employed workers; if there are no barriers between the self-employed sector and the salary/wage sector, self-employed workers should not enjoy rents. Examination of the rent associated with self-employment, however, cannot simply be accomplished by comparing the 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 overcome the difficulty of measuring self-employment rents, I use self-reported job satisfaction from the National Longitudinal Survey of Youth 79 (NLSY79) to capture workers' overall satisfaction with their jobs. The results robustly indicate that self-employed workers are more satisfied with their jobs than salary/wage workers, even after allowing for the time-invariant individual heterogeneity in their reported job satisfaction. This result suggests that there are barriers at the entry into self-employment and that self-employed workers enjoy rents.

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Article provided by Hitotsubashi University in its journal Hitotsubashi Journal of Economics.

Volume (Year): 49 (2008)
Issue (Month): 1 (June)
Pages: 35-45

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Handle: RePEc:hit:hitjec:v:49:y:2008:i:1:p:35-45
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  1. Andrew Clark & Yannis Georgellis & Peter Sanfey, 1997. "Job Satisfaction, Wage Changes and Quits: Evidence from Germany," Studies in Economics 9711, School of Economics, University of Kent.
  2. Taylor, Mark P, 2001. "Self-Employment and Windfall Gains in Britain: Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 68(272), pages 539-65, November.
  3. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  4. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
  5. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  6. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
  7. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
  8. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  9. Kawaguchi, D., 2001. "Human Capital Accumulation of Salaried and Self-Employed Workers," ISER Discussion Paper 0530, Institute of Social and Economic Research, Osaka University.
  10. Clark, Andrew E., 2001. "What really matters in a job? Hedonic measurement using quit data," Labour Economics, Elsevier, vol. 8(2), pages 223-242, May.
  11. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, vol. 21(3), pages 281-304, June.
  12. Richard B. Freeman, 1977. "Job Satisfaction as an Economic Variable," NBER Working Papers 0225, National Bureau of Economic Research, Inc.
  13. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, June.
  14. Carrington, William J & McCue, Kristin & Pierce, Brooks, 1996. "The Role of Employer-Employee Interactions in Labor Market Cycles: Evidence from the Self-Employed," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 571-602, October.
  15. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
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