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The Perceived Well-being and Health Costs of Exiting Self-Employment

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  • Nikolova, Milena
  • Nikolaev, Boris
  • Popova, Olga

Abstract

We explore how involuntary and voluntary exits from self-employment affect life and health satisfaction. To that end, we use rich longitudinal data from the German Socio-Economic Panel from 1985 to 2017 and a difference-in-differences estimation. Our findings suggest that while transitioning from self-employment to salaried employment (i.e., a voluntary self-employment exit) brings small improvements in health and life satisfaction, the negative psychological costs of business failure (i.e., switching from self-employment to unemployment) are substantial and exceed the costs of involuntarily losing a salaried job (i.e., switching from salaried employment to unemployment). Meanwhile, leaving self-employment has no consequences for selfreported physical health and behaviors such as smoking and drinking, implying that the costs of losing self-employment are largely psychological. Moreover, former business owners fail to adapt to an involuntary self-employment exit even two or more years after this traumatic event. Our findings imply that policies encouraging entrepreneurship should also carefully consider the costs of business failure.

Suggested Citation

  • Nikolova, Milena & Nikolaev, Boris & Popova, Olga, 2020. "The Perceived Well-being and Health Costs of Exiting Self-Employment," GLO Discussion Paper Series 527, Global Labor Organization (GLO).
  • Handle: RePEc:zbw:glodps:527
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    References listed on IDEAS

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    1. Hainmueller, Jens, 2012. "Entropy Balancing for Causal Effects: A Multivariate Reweighting Method to Produce Balanced Samples in Observational Studies," Political Analysis, Cambridge University Press, vol. 20(1), pages 25-46, January.
    2. John Armour & Douglas Cumming, 2008. "Bankruptcy Law and Entrepreneurship," American Law and Economics Review, Oxford University Press, vol. 10(2), pages 303-350.
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    Cited by:

    1. Hetschko, Clemens & Knabe, Andreas & Schöb, Ronnie, 2021. "Happiness, Work, and Identity," GLO Discussion Paper Series 783, Global Labor Organization (GLO).
    2. Nikolova, Milena & Popova, Olga, 2020. "Sometimes your best just ain't good enough: The worldwide evidence on subjective well-being efficiency," GLO Discussion Paper Series 596, Global Labor Organization (GLO).
    3. Carol Graham, 2005. "The Economics of Happiness," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 6(3), pages 41-55, July.

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    More about this item

    Keywords

    entrepreneurship; self-employment; health; well-being; unemployment; job switches;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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