28/12/2014: Health Impact of Self-Employment

A recent paper by Zhang, Ting and Carr, Dawn, titled "Does Working for Oneself, Not Others, Improve Older Adults' Health? An Investigation on Health Impact of Self-Employment" (American Journal of Entrepreneurship, Volume 7(1), pp. 142-180, 2014. http://ssrn.com/abstract=2512600) "examines the health impact of being self-employed versus working for others among older adults (aged 50 ) and its implications".

Economic reasoning behind the study is straightforward:

1. As authors note, "facing an aging workforce, self-employment at older ages may provide an economic benefit via an alternative to retirement.
2. As authors do not note, self-employment is generally associated with higher levels of stress, induced by income uncertainty, volatility, lack of proper scheduling of vacations and breaks, tax-induced anxiety and other factors that can potentially adversely impact self-employed.
3. Self-employment in older age is becoming increasingly the likeliest prospect for future employment for many workers, especially as economies gear toward services sectors with fast depreciation of skills and increased specialisation.

Despite all of the above, as stated in the paper, "little research has examined the health effects of self-employment in later life."  Zhang and Carr study "comprehensively examines health using a 29-item index to measure the impact of self-employment status on changes in older adults' overall health." The authors provide control for "potential endogeneity and simultaneity issues."

The study finds that "self-employment compared to wage-and-salary jobs result in better health, controlling for job stress and work intensity, cognitive performance, prior health conditions, socioeconomic and demographic factors. This positive self-employment impact stands out in knowledge-based industry sectors. In labor intensive industry sectors such as Durable Goods Manufacturing, self-employed older adults' more gradual retirement seems to result in a health advantage over wage-and-salary employees."

These results are quite interesting from both microeconomic and macroeconomic perspective. Self-employment as opposed to full retirement secures more significant pensions cover in older age, coincident with poorer health and greater demand for healthcare. It is also, it seems, reduces cost of healthcare in the first years of retirement. In addition, self-employment of older workers suggests that ageing demographics impact on aggregate growth and productivity growth can be mitigated in the Western societies, if there is an improved system of incentives for older workers to transition into retirement more gradually, over longer time.