Compensating wage differentials among self- employed workers: Evidence from job satisfaction scores

Previous studies have found that self-employed workers with long business tenure 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-earnings aspects. Using the National Longitudinal Survey of Youth 79 (NLSY79), I test whether moves in and out of self-employment are associated with changes in recorded job satisfaction scores. By looking at changes in individualsf job satisfaction over time, I overcome the difficulty of interpreting differences in subjective job satisfaction scores across individuals associated with cross-sectional analysis. Using my estimates, I calculate the monetary value of the non-pecuniary aspects of self-employment and find that 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.