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Self-employed: long hours and low wages, but high job satisfaction

13.04.2006

Self-employed male Britons have been found to work longer hours for lower wages than those of their employee counterparts. This is attributed to them facing greater uncertainty and so working harder as a way to insure their future livelihoods. In addition, according to the research funded by the Economic and Social Research Council, there was no evidence of growing female self-employment, or the anticipated greater labour flexibility resulting from self-employment during the 1990s.

The project, conducted by Professor Simon Parker and Olufunmilola Ajaji-obe of the Durham Centre for Entrepreneurship, University of Durham, sought a better understanding of the nature of work and the labour supply of self-employed people by studying various employment data sources in the UK and the USA.

“More than one-in-ten workers are self-employed in the UK, they employ a similar number of people and run most of the UK’s firms. This makes them a very important part of the overall labour market,” said Professor Simon Parker. “The study has revealed a number of key findings that might make it easier for policy-makers to successfully promote entrepreneurship and self-employment.”

Although self-employed people work long hours, they were less satisfied with the length of time they felt they had to work than employees. Given the chance and like employees, male self-employed Britons respond to higher earnings by working fewer hours.

In addition to examining the changing nature of work of self-employed people, the project also developed a model of entrepreneurial learning and explored the retirement behaviour of older self-employed workers.

“We found that younger entrepreneurs are significantly more sensitive to new information than the older ones. However, overall the whole group adjust their expectations of unobserved productivity, in the light of acquiring new information, by only 16 percent,” said Professor Parker. “Another observation was that greater, or potentially greater, earnings around retirement age decreases the probability of retirement of the self-employed. It seems to be, ‘Why stop whilst there’s a good thing going?’ – a very understandable sentiment. Gender, health and family circumstances appear to have little bearing on entrepreneurs’ retirement decisions.”

Professor Parker identifies a number of key implications:

• Advantageous welfare benefits policies could alleviate income risk – making self-employment more attractive.
• In encouraging self-employment, Government should target younger rather than older workers as fewer workers switch into this form of employment in later working life.
• Policies promoting better health among older workers are likely to discourage the self-employed switching to paid employment, whereas for employees such policies would principally postpone retirement.
• Entrepreneurship programmes should be open to all levels of experience and promote continuous business awareness and learning.
• While entrepreneurs exploit new information, they give greater weight to their prior beliefs when forming their expectations.