Entrepreneurial worries: Self-employment and potential loss of well-being

The relationship between self-employment and life satisfaction has been shown to be heterogeneous in the literature. This paper analyzes a channel through which lower well-being can come about for the self-employed, namely, their worries about their business (“entrepreneurial worries”). Using a two-way fixed effects estimator on German panel data (1984–2020), I find no overall effect of becoming self-employed on life satisfaction, and heterogeneity analysis shows that only those self-employed individuals who change from unemployment to self-employment report higher life satisfaction. Mediation analysis reveals that worries about one’s financial situation (and, to some extent, job security) mediate the relationship between self-employment and life satisfaction. Life satisfaction decreases as self-employed individuals worry more about their financial situation as a result of becoming self-employed. Only if one does not worry about one’s financial situation at all does self-employment contribute positively to life satisfaction.