Being Your Own Boss Brings Benefits, But Not Always More Money

Autonomy has long been regarded as hugely valuable and rewarding in the workplace. Research from Harvard Business School reminds us, however, that while being our own boss can provide us with many benefits, more money might not be among them.

The notion that self-employment, and the autonomy it brings, has a long history. For instance, 2018 research found that self-employed people not only found work more rewarding but also enjoyed it more than their peers in full-time work. This is despite often working longer hours and having less job security than their employed peers.

The analyses found that self-employed workers were more engaged at work because of the freedom they enjoyed to innovate and control their work environment.

“Being engaged in their jobs makes people feel energized and pleased with their own contribution,” the authors say. “Measuring how engaged people are in their work is therefore a really useful way to gauge their wellbeing and shows we must move beyond just looking at job satisfaction.”

Covid impact

Of course, this autonomy is also typified by a lack of certainty, and the pandemic underlined the pitfalls this can bring, with research from the London School of Economics showing that the early months of the pandemic were defined by a significant fall in both hours of work and income for the self-employed, with this fall greater than for any kind of worker.

While this recovered somewhat over the summer months, both hours and earnings remain significantly below pre-pandemic levels. Indeed, half of the self-employed people spoken to for the survey revealed that their earnings remained under £1,000 per month by August. While this figure was marginally lower than in April, it was significantly higher than the 33% who reported likewise before the pandemic.

A follow-up analysis revealed that while there had been a gradual recovery, 40% of respondents said that they still had less work than usual during August 2021, with the majority attributing this to the pandemic.

This reduction in work is reflected in the nature of self-employed workers’ income, with nearly half having income less than £1,000. This shows precious little change from figures in January 2021, when the UK was in the midst of a second national lockdown. It’s no real surprise, therefore, that by September 2021, nearly a third of self-employed people were saying they were struggling to deal with even basic expenses.

Independent working

The Harvard team looked at the nature of self-employment over the past 50 years and find that while the number of jobs held by self-employed contractors has tended to remain pretty steady, it is less common for people to start businesses that require a decent amount of capital.

What’s more, they also found that local entrepreneurship in one’s hometown has also declined, with the self-employed seldom among the larger earners in their respective communities.

“It’s gotten harder to make a substantial profit at those smaller-scale levels,” the researchers explain. “It’s hard to make the numbers work. Clearly, there are success stories within those areas, but there are fewer success stories today. At the macro level, the profit squeeze is just hard.”

This corresponds to a general trend among the self-employed away from areas that require higher levels of startup capital and into areas such as construction and child care. Indeed, whereas in the 1970s sectors such as retail and hospitality accounted for around 55% of self-employment, this had declined to 23% by the 2010s.

Indeed, this coincides with a generally worsening relationship between self-employed incomes and the wages paid by organizations, with salaried workers doing better than their self-employed peers in recent years. For instance, in the 1970s, around 10-15% of self-employed people fell into the top 5% of earners, but by 2018 this had fallen to around 7%.

A tough gig

This matches the findings from research by Mercer University, which examined the transitions to and from self-employment among scientists and engineers. External research has shown that self-employed people typically make less than their salaried peers, especially when in-work benefits are taken into account, so the researchers were keen to explore the motivations behind the transition, and especially to explore whether the desire for greater job satisfaction was at the heart of the move.

The data confirms this general trend, with the highly educated scientists and engineers often failing to improve their income after transitioning into self-employment. What’s more, after an initial spike in their level of job satisfaction, this appears to diminish over time to the point where there is no real gain in either income or job satisfaction. The data suggests it was those with the lowest income that typically made the transition into self-employment, although it doesn’t say whether the move was voluntary or compulsory.

The data showed that a similar short-term boost in job satisfaction was seen in those who changed jobs for salaried work. In terms of who was moving, perhaps unsurprisingly those with the highest salaries tended to stay put, although their job satisfaction deteriorated over time. Those found to be most likely to move were those with the lowest job satisfaction, and moving typically resulted in gains in both income and satisfaction.

While this shouldn’t necessarily mean that becoming self-employed is a bad thing, it is perhaps important for people to appreciate that financial motivations for becoming self-employed may not be met and that other motivations might be more likely to be rewarded.