Self-employment, entrepreneurship, and the NLSY79: researchers have used the rich data from the 1979 cohort of the National Longitudinal Survey of Youth to investigate the relationship between self-employment and various job and earnings outcomes; future inquiry may afford valuable insights into other interesting consequences of self-employment

Monthly Labor Review, Feb, 2005 by Robert W. Fairlie

Self-employment and other outcomes. The detailed information available in the NLSY79 also allows for the analysis of the relationship between self-employment and other outcomes, such as future wage and salary income, job satisfaction, and net worth. One possibility is to examine the relationship between early-career self-employment experience and future labor market outcomes. The NLSY79 is an excellent instrument for this type of analysis because it follows individuals from ages 14 to 22 in 1979 to 37 to 45 in 2002.

A previously mentioned work by Fairlie examines the earnings patterns of less educated individuals who are self-employed early in their careers and makes comparisons with young, less educated wage and salary workers. (24) Self-employment status is determined between ages 22 and 26, and earnings are measured starting at age 27. Estimates from fixed-effects regressions indicate that the self-employed experience faster earnings growth, on average, than do wage and salary workers after a few initial years of slower growth. In a similar vein, Williams examines the relationship between self-employment at ages 16 to 20 and outcomes at ages 25 and 27. (25) He finds that self-employment as a youth is associated with a substantially higher probability of being self-employed in early adulthood (age 27), but also is associated with lower earnings at that age.

Another interesting question that can be answered with the NLSY79 is whether self-employment experience is rewarded in the wage and salary sector. Do self-employment spells limit opportunities for acquiring valuable labor market experience, especially firm- and sector-specific human capital, or do they provide workers with skills that are rewarded in the wage and salary sector? Again using data from the NLSY79, as well as data from the National Longitudinal Survey (NLS) of Young Women, Williams examines the effects of self-employment experience on future wage and salary earnings of men and women. (26) His estimates indicate a negative return for women and little or no return for men.

Most of the focus in the self-employment literature is on earnings, but other outcomes also are of interest. In particular, lower hourly earnings among the self-employed with high levels of tenure may be explained by nonpecuniary factors of the job, such as being one's own boss. Kawaguchi uses the NLSY79 to investigate whether self-employment is associated with higher levels of job satisfaction. (27) He finds that 65 percent of the self-employed report liking their job "very much," whereas only 45 percent of wage and salary workers report that level of job satisfaction. Estimates from regression models which control for individual heterogeneity confirm that the self-employed have higher levels of job satisfaction than wage and salary workers have.

RESEARCH USING THE NLSY79 has undoubtedly improved our understanding of the determinants of entrepreneurship, the dynamic process of self-employment, and self-employment earnings patterns. Although the relationship between self-employment and a few outcomes, such as future wage and salary earnings and job satisfaction, has been explored with the exceptionally rich data available in the NLSY79, more research may provide valuable insights into the consequences of self-employment. For example, the detailed data available in the survey allow one to explore the causal relationship between self-employment and several outcomes of interest, such as net worth, business net worth, health insurance and other fringe benefits, and public assistance programs.