Abstract:
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Previous studies have found that self-employed workers earn less than other workers with similar characteristics. This difference in earnings can be explained by the compensating wage differential theory when self-employed jobs have attractive, non-pecuniary aspects. Using the National Longitudinal Survey Youth 79 (NLSY79), I test whether moves in and out of self-employment are associated with changes in global job satisfaction. By looking at changes in job satisfaction for individuals over time, I overcome the difficulty of interpreting differences in subjective job satisfaction scores across individuals that cross-sectional analysis would require. Using my estimates, I calculate the monetary value of the non-pecuniary aspects of self-employment and find that one dollar earned while a self-employed worker is equivalent to as much as three to four dollars earned as a salary or wage worker. Although job satisfaction is a partial component of workers' total utility, the value of self-employment in terms of job satisfaction is sufficiently high enough to support the compensating differential hypothesis as an explanation for lower earnings among self-employed workers.
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