Although the share of the population working for themselves has declined in recent years, self-employment remains an important way that many people make a living. For these people, there's a paradox in the data. On average, the self-employed make less money, work more hours, and experience more work-related stress than the wage employed. Self-employed people have higher job satisfaction, however, than those who work for others, a point confirmed by a recent Pew Research Center report.
If the job's so lousy, why do the self-employed like it so much?
FIRST THE NUMBERS
Self-employed people make no more money than those who are work for wages, with some sources showing that they make less. Data from the 2008 Current Population Survey indicate that the median earnings of the self-employed are $26 per year higher than the median earnings of the wage-employed ($31,012 versus $30,986).
An earlier study by Bart Hamilton of Washington University in St. Louis, however, showed that the median earnings of people who have run their own businesses for 10 years are only two-thirds of what people would have earned working for someone else. And the Pew report indicates that "four-in-ten of all self-employed workers (40%) say their family either falls short of meeting their basic living expenses or are barely getting by. In contrast, only about a third (32%) of all wage and salary workers report being similarly stressed."
The full-time self-employed work more hours than the full-time wage-employed. According to 2009 annual data from the Bureau of Labor Statistics, self-employed folk outside the agricultural sector who "usually work full time" average 42.7 hours per week, compared with 41.7 hours for the wage-employed who work outside of agriculture and "who usually work full-time." Older data from the Organization for Economic Cooperation & Development show this pattern is present for most developed countries.
Self-employment is also stressful. A 2004 paper by David Blanchflower of Dartmouth College reports that the self-employed suffer from much job-related stress, which causes them to lose sleep and experience conflict with their spouses and makes it difficult for them to enjoy their leisure activities.
Despite all these negatives, however, self-employed people are happier with their jobs than the wage-employed. According to the Pew report, "Nearly four-in-ten self-employed workers (39%) say they are 'completely satisfied' with their jobs, compared with 28% of all wage or salaried employees." This is consistent with earlier studies showing that, in a wide range of countries, a higher percentage of the self-employed are satisfied or very satisfied with their jobs than the wage employed.
NOW THE EXPLANATION
How can the self-employed earn less money, work more hours, and experience more work-related stress than the wage employed—yet still report greater overall job satisfaction? The answer appears to be that people value highly the autonomy, flexibility, and opportunity to work in a small organization .
Many studies show that the desire to be one's own boss is one of the leading motivators of self-employment. Others report flexible schedules are a key motivator of self-employment. Moreover, human beings have a preference for working in settings where they can interact with all the members of the organization, according to research by Bruno Frey and Matthias Benz of the Institute of Empirical Economics of the University of Zurich.
In short, the paradox isn't such a paradox after all. People will work harder, earn less, and put up with more stress so that they can enjoy the freedom, flexibility, and work environment that self-employment provides.