The Perceived Well-being and Health Costs of Exiting Self-Employment. A new GLO Discussion Paper.

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A new GLO Discussion Paper shows that transitioning from self-employment to salaried employment brings small improvements in health and life satisfaction, but the negative psychological costs of business failure are substantial and exceed the costs of involuntarily losing a salaried job.

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GLO Discussion Paper No. 527, 2020

The Perceived Well-being and Health Costs of Exiting Self-Employment – Download PDF
by Nikolova, Milena & Nikolaev, Boris & Popova, Olga

GLO Fellows Milena Nikolova, Boris Nikolaev & Olga Popova

Milena Nikolova

Author Abstract: We explore how involuntary and voluntary exits from self-employment affect life and health satisfaction. To that end, we use rich longitudinal data from the German Socio-Economic Panel from 1985 to 2017 and a difference-in-differences estimation. Our findings suggest that while transitioning from self-employment to salaried employment (i.e., a voluntary self-employment exit) brings small improvements in health and life satisfaction, the negative psychological costs of business failure (i.e., switching from self-employment to unemployment) are substantial and exceed the costs of involuntarily losing a salaried job (i.e., switching from salaried employment to unemployment). Meanwhile, leaving self-employment has no consequences for selfreported physical health and behaviors such as smoking and drinking, implying that the costs of losing self-employment are largely psychological. Moreover, former business owners fail to adapt to an involuntary self-employment exit even two or more years after this traumatic event. Our findings imply that policies encouraging entrepreneurship should also carefully consider the costs of business failure.

GLO Discussion Papers are research and policy papers of the GLO Network which are widely circulated to encourage discussion. Provided in cooperation with EconStor, a service of the ZBW – Leibniz Information Centre for Economics, GLO Discussion Papers are among others listed in RePEc (see IDEAS,  EconPapers). Complete list of all GLO DPs – downloadable for free.

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