Becoming self-employed from inactivity: an in-depth analysis of satisfaction

Abstract

Inactive individuals represent a pool of potential labour whose activation entails economic and social advantages. Additionally, being active allows individuals to cover their basic psychological needs—autonomy, competence and relatedness—which leads to greater satisfaction through self-determination. We posit that self-employment may be an attractive alternative because its nonpecuniary aspects may suit their needs better. Using data from the European Community Household Panel, we applied propensity score matching techniques to analyse the change in satisfaction with main activity of inactive individuals becoming self-employed compared to those becoming employees and those remaining inactive. We further perform separate analyses for homemakers, retirees and students to account for heterogeneity within inactivity. We find that self-employment is associated with more satisfaction than remaining inactive in the case of retirees and homemakers, while students tend to experience a larger increase in satisfaction when entering self-employment compared to paid employment. The implications of these results for activation and entrepreneurship policies are discussed.