Entrepreneurship and happiness has been a topic of
interest in the research world for many years. The
self-employed are consistently found to be happier and satisfied with their
jobs. But do they really live a happy life? We find that happiness is largely
linked to job satisfaction. In this review, we will discuss what the motivating
factor for self-employment is. Also, we shall discuss the determinants for job
satisfaction and how it affects happiness. We will discuss “procedural utility”
and the “crowding-out” phenomenon in the life of entrepreneurs.
Work is an important factor of human life and it has strong
e?ects on individuals’ satisfaction with life or happiness. High work satisfaction for the self-employed has often been interpreted
to mean that self-employed are happier with their lives, although strictly
speaking, the evidence on the self-employment-happiness relationship is
considerably weaker and more mixed than with work satisfaction.
Review of Literature
The self-employed are said to be earning less than
employed people according to a study (Hamilton, 2000), yet they are found to be
substantially more satisfied and therefore happy with their employment. Then
what is the factor that gives people an edge over paid employment? If it is not
the monetary gains, then we must look in to the more intangible factors.
Determinants of Entrepreneurial
Some entrepreneurs are more satisfied with their ventures
than others. In this review we link entrepreneurial satisfaction to performance
and other factors like human capital (general and specific), start-up
motivation, procedural utility, etc. These factors may have both a direct and
indirect effects on satisfaction.
According to this journal (Benz and Frey, 2008a), we can
see that employment has been identified as the major factor influencing a
person’s happiness or sate of well-being. For example, an employed person will
obviously be happier than an employed one. This paper also argues that self-employed
people can achieve more happiness than their paid employee counterpart because
it provides “procedural utility”. Procedural utility means that people not only
value the outcomes but also the conditions and processes leading to those
outcomes. Individuals derive procedural utility from being self-employed
because it gives them more freedom and self-determination. This freedom to make
choices and in having a say in all the processes increases the satisfaction a
person receives from his/her job.
Being your own Boss
According to a study (Blanchflower, 2004), large numbers
of individuals find becoming their own boss highly attractive. Considering the
study of Benz and Frey (2004), their results suggested that self –employed
people do not derive more utility from their work because of any material
outcome. On the contrary, they earn less than paid employees. They have
empirically shown that greater autonomy and independence have led to increased
job satisfaction. Their findings thus, suggest that greater independence at
work or the greatly held notion of “being your own boss” is the reason of
increase in job satisfaction, thereby leading to happiness.
Opportunity or Necessity?
It is said that the self-employed are a rather
heterogeneous group (Santarelli and Vivarelli, 2007) and that only certain
forms of self-employment is conducive for subjective well-being. In the study
(Binder and Coad, 2013a) they have explored the self-employment happiness scale
by distinguishing whether an individual pursues entrepreneurship to exploit new
business opportunities or just to escape from unemployment(out of necessity) . Thus
we can imply that the reason for choosing self-employment is a huge factor when
considering job happiness. It is widely known that if an individual does a job
just to earn a living and not out of passion for the work, that individual will
not be happy with his/her life.
The individuals who seek self-employment out of necessity
and to avoid unemployment might not profit at all from becoming self-employed
(Fuchs-Sch¨undeln, 2009). Only individuals who voluntarily go into
self-employment to pursue entrepreneurial opportunities can be conjectured to
enjoy the entrepreneurial life-style and enjoy procedural utility from becoming
self-employed. Therefore, it can be seen that self-employed people who chose
their career out of sheer desire to be entrepreneurs were significantly more satisfied with their
life overall than their employed counterparts rather than those who became
entrepreneurs out of necessity(to avoid unemployment).
In a study(M.A.Caree and I.Verheul, 2011) it was proved
that entrepreneurs who have large number of specific/relevant human capital
than general human capital at the time of start-up have more realistic
expectations and, accordingly, are more likely to be happy with financial
performance or non-monetary utility derived from the business (e.g.,
psychological well-being, leisure time, etc.). The opposite will be true for
high levels of general human capital, which are expected to boost the
expectations of individual entrepreneurs and make it more difficult to achieve
According to a study by Salinas Jimenez (2010), the
reason for motivation in start-ups have an important effect on life
satisfaction. And also that intrinsic motivation leads to better satisfaction
than extrinsic motivation. Intrinsic motivation refers to the behavior that
arises from within because it is naturally satisfying, whereas extrinsic
motivation refers to behavior driven by external rewards like money, fame
praise, etc. Two important intrinsic motivations include being your own boss
and the challenges of entrepreneurship. Individuals who are motivated due to
these reasons will be less disappointed by unexpected financial hardships or
long working hours.
The firm’s performance also has an indirect effect on the
individual’s satisfaction. This related to the income generated on the venture.
The firm’s success rate can further motivate the individual to thereby
increasing the satisfaction.
Link between job satisfaction and
In the above sections we have seen the effects of
self-employment on job satisfaction. But now let us study whether job
satisfaction direct link to life satisfaction/happiness.
In recent studies, (P.Andersson,2005), even though
entrepreneurs enjoy more job satisfaction, they seem to have more stress and
seem more tired than regular employees. As has been argued in previous work on
the topic, one explanation for this puzzling finding could lie in a
crowding-out phenomenon: self-employed who are much happier with their work
than the employed spend considerably more time with their job thus “crowding-out”
other important domains of life (such as leisure time) and leading in sum to a
neutral effect on overall life satisfaction.
individuals obtain satisfaction from leading an independent lifestyle and “being
their own bosses”. Having a higher job satisfaction, however, does not
necessarily translate into self-employed individuals being overall more
satis?ed with their lives as a whole. Life satisfaction in itself is a much
more global evaluation of individual’s actual state of being, being in?uenced
not only by job satisfaction but a complex and interacting web of in?uences
(Binder and Coad, 2010a,b). Since individuals might be able to compensate high
achievement in some domains of life with low achievements otherwise, a high job
satisfaction might be counterbalanced by lower satisfaction in the family
domain, or social life.
This weak association between
self-employment and life satisfaction might be a result of the above-mentioned
domain view of well-being. Highly satisfied with their jobs, the self-employed
ignore other important life domains and turn out to be less satisfied in those,
leading to an overall sketchy association of self-employment and global
But considering the above discussed
determinates of job satisfaction, we can see that the reasons for happiness
outweighs the negative effects especially for those who have chosen
self-employment due to genuine interest.
Becoming an entrepreneur is a life
changing event and it has a major impact on the overall well-being of an
individual. I can conclude that after considering the major determinants of job
satisfaction and well-being, the self-employed appear to be happier and
satisfied with their work and life.
Overall, we have found that being
forced into self-employment due to any reason can have decreasing effects on
happiness. So, happiness depends on the natural interest someone has in the
work he does.