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It's Official: We are Happier!

March 2004

Summary

It turns out that independent contractors (or the self-employed) are happier with their work than employees.

This is the research finding made by two economists at the University of Zurich, Switzerland and published for the Stockholm Conference on Self-Employment. The research is based on:
  • 'three renowned panel databases from Europe' including Germany, the UK and Switzerland, and
  • the 'International Social Survey Program' which surveyed 16,000 people in 23 countries.
The research concludes that:
  • Independent contractors usually earn less than employees, but
  • Are happier with their work than employees because of their independence.
The research discusses the implications for economic theory and economic policy. It concludes that:
  • There is a latent entrepreneurship in all nations,
  • that 'government should at least not restrict self-employment opportunities',
  • but that amongst a large sample of nations, 'administrative and regulatory barriers for entering self-employment are often high'.

ICA comment

ICA is not surprised by the research findings. It confirms what ICA knows and believes can be reasonably inferred from the anecdotal evidence gathered from the personal experiences of independent contractors themselves.

It is refreshing that that this sort of research is actually occurring because the phenomenon of independent contracting has barely been researched at all. While independent contracting has been much demonized and attacked simply because it is different, it in fact holds great potential for the advancement of economic well-being across the globe.

And the motivation for independent contracting has been identified in this research. The motivation is a deep desire within people to control their own situations, destinies and work life choices. Frequently, and most commonly, income is sacrificed to pursue these goals.

Instead of attempting to suppress independent contracting---as occurs now---governments should welcome it. There is a tremendous, latent potential in our communities for people to strike out as independent, self-employed businesses. Not only is it a basic right of people to seek this independence at work, but such independence generates new thoughts, ideas, products and services within the framework of personal achievement and satisfaction. This is a great driver of economic growth. Further, it challenges the notion which is all too prevalent in companies that they need controlled and dependent employees in order to operate and succeed. In fact, it can be argued that companies often fail to release and realize human and economic potential because they are so dependent on employment as a form of worker engagement.

Quotations from the research

The findings:
  • The self-employed are substantially more satisfied with their work than employed persons.
  • The higher job satisfaction can directly be attributed to the greater independence and autonomy they enjoy.
  • Autonomy is valued beyond outcomes.
  • A fact now well established in the economics literature: self-employed people are considerably more satisfied with their work than employed people in organizations.
  • If anything, the self-employed earn lower wages than employees. We empirically show that the greater independence and autonomy of self-employed is largely responsible for their particular job satisfaction.
  • The opportunity to 'be your own boss' is an important source of happiness at work.
  • We show also the average employee values work characteristics that are closely associated with self-employment.
  • Our results show that autonomy associated with self-employment is particularly valued in western countries, but not exclusively so. This stands in contrast to 'culturalist' theories stating that autonomy of choice may be important to people in 'individualistic' western countries ... but not in more 'collectivistic' non-western cultural contexts.
Implications for economic theory:
  • Evidence for a novel concept called 'procedural utility'. 'Procedural utility' means that people do not only care about instrumental outcomes, but also value the processes and conditions leading to outcomes. Procedural utility thus represents a completely different approach to human well-being than the standard approach applied in economics.
  • For economists, procedural utility is particularly interesting because of its relationship with institutions.
  • The price system (the market), democracy, hierarchy, and bargaining are generally seen as the most important formal systems for reaching decisions.
  • Procedural utility submits that institutions are not only important because they shape outcomes, but also because individuals value institutions as such. Previous research has shown this, for example, for the institution of democracy.
  • Self-employment is an important application of the procedural utility concept to the economic realm: it reflects the difference between the two fundamental decision-making procedures of the economy. Whereas the self-employed are their own bosses and act as independent contractors on the market, employed persons are subject to the institution of hierarchy.
Implications for economic policy:
  • Interesting evidence on this 'latent entrepreneurship'.
  • The share of people preferring self-employment to dependent employment is in every country considerably higher than the actual rate of self-employment in the economy.
  • The share of latent entrepreneurs in the workforce ranges from 17.4 per cent in Sweden to 57.7 per cent in the United States of America.
  • Thus, it can be hypothesized that self-employment will increase in the future as a result of changes in technology and the organization of production.
  • Governments should at least not restrict self-employment opportunities. In many countries the situation is quite the opposite.

The Paper

'Being Independent Raises Happiness at Work'
by Matthias Benz and Bruno Frey
University of Zurich
For Stockholm Conference on Self-Employment, 22 March 2004.
Published in Swedish Economic Policy Review, 11, (2004).

The full paper is available here.


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