Well-Being and Entrepreneurship: Using Establishment Size to Identify Treatment Effects and Transmission Mechanisms

Summary of Study

Bottom Line: Self-employed individuals are significantly more satisfied with their lives than their counterparts with general employment. The well-being effect of entering self-employment mainly derives from the active choice and engagement in entrepreneurial activity. These wellbeing effects arise due to the entrepreneurial tasks that are specific to small, young firms and potentially also the diversity of tasks that the self-employed perform in such firms.

The positive link between entrepreneurship and well-being is influenced by the extent to which the decision to engage in entrepreneurship reflects voluntary choice. This link is also influenced by the ability of the entrepreneur to match preferences for autonomy, task variety, and challenging tasks to environments. When individuals with personality characteristics like high self-efficacy and perseverance are matched with entrepreneurial jobs, well-being increases.

Self-employment affords individuals the opportunity to assume more control over their lives than those who are employed because:

  • Self-employment means the absence of the external control implied by being a member of a hierarchical organization.
  • Individuals with an autonomous locus of control are better able to cope with financial stress.

Much entrepreneurship research now stresses how social entrepreneurs are motivated by pro-social concerns and overall satisfaction that acting on pro-social motivation may cause. In other words, the “extra-economic” aspect may play a significant role in the decision to become an entrepreneur. Among such extra-economic parts are preferences for entrepreneurial job attributes, such as:

  • Autonomy (i.e., the capacity to make independent, uncoerced decisions, reflecting an internal locus of control).
  • Risky activities (i.e., taking on more economic chance and variation than standard employment).
  • Task diversity (i.e., entrepreneurs typically have to engage in a wide variety of different tasks).

The study offers four specific hypotheses regarding entrepreneurship and well-being:

  1. Entrepreneurship causes subjective well-being.

  2. The entrepreneurship-well-being relationship is substantially stronger when entrepreneurship is a predominantly voluntary choice, as opposed to pursuing entrepreneurship out of necessity. 

  3. The entrepreneurship-well-being relation is mediated by autonomy as well as the ability of entrepreneurs to match their task environment to their specific preferences for tasks and task diversity.

  4. The entrepreneurship-well-being relation is influenced by the size of the firm that the entrepreneur directs: the larger the firm, the weaker the entrepreneurship-well-being relation.

Read the full study HERE