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Self-employment dims chance of landing a company job, study finds

June 24, 2013

In a bleak job market, like the one that has prevailed during the past several years, does it make sense to head off on one's own? On the basis of recent increases in self-employment, a lot of people appear to think so, with the number of proprietors growing by almost 2 million in the US and by close to 400,000 in the UK during the Great Recession and its aftermath.

Yet, research to be presented at a major management conference this summer sounds a caution about these developments. Self-employment, it finds, entails not just such well-known drawbacks as low earnings, long hours, and risk to personal funds; it also has the further effect, until now unrecognized, of compromising prospects for wage employment if proprietorship falls short of expectations.

A study to be presented at the Annual Meeting of the Academy of Management (Orlando, Florida, Aug. 9-13) challenges the proposition that "it is always possible to quit and re-enter employment if a venture is unsuccessful [so that] it makes good sense to start a business that could yield large rewards." What the research finds instead, in an elaborate field experiment over the course of two years, is that self-employed individuals who seek wage positions "systematically attract fewer interview invitations" than comparable peers who have spent their previous careers in paid employment.

In the field experiment, entrepreneurs received about 63% fewer positive responses from potential employers than wage employees received.

In the words of the study, "our results leave little doubt that entrepreneurs experience adverse treatment... The choice to become an entrepreneur can result in an involuntary lock-in, a factor that should be taken into account in planning one's future career."

The unusual research was carried out by a team of scholars consisting of Philipp Koellinger, Julija Mell, and Irene Pohl of Erasmus University, Rotterdam; Christian Roessler of the University of Vienna; and Theresa Treffers of the Munich School of Management. It consisted of sending pairs of resumes and cover letters to employers or recruiting agencies in the UK in response to actual job offerings, the UK being chosen "because job applications there only require a CV, whereas it is customary in many other countries to include references, certificates, and other documents in the initial application."

This feature was important, because, while the jobs offered were real enough, the applicants, evenly divided between male and female, were fictitious. In response to each of 96 job postings on online job boards and social media for positions in human-resource management, the researchers sent a pair of CVs and cover letters, taking care to maintain equivalence in terms of years and content of work experience, education, and professional affiliations. As the study's authors explain, "The skills and training acquired during the first seven years [of the applicants' careers], listed at the bottom of the CV, were the same, including the level of responsibility for projects and employees at different career stages...Both types of applicants had worked at medium-sized and large firms that still exist and existed during the time the applicants were supposed to have been working there. The locations of the companies were chosen so that the applicants had no unusual episodes of moving far away in their histories."

As for the selection of human-resource management, "we chose to focus on a sector where self-employment occurs frequently and individuals with experience in working on their own account are not automatically perceived as 'odd cases.' "

The key difference between the CVs was in the supposed applicants' current positions since 2009. One had "owned and managed a small HR consulting company consisting of a team of three consultants and supporting staff"; in contrast, the other had worked in a company's HR consulting division "as project manager for consulting teams providing HR services to client groups."

Out of a total of 192 applications, 95 evoked no response and 75 evoked negative responses. Of the 22 positive responses (transmitted by e-mail or voice-mail messages), 6 were for applicants from the self-employed group and 16 for wage earners. Statistical analysis indicates this difference to be significant, with only a 2% probability that it is due to chance.

The disparity between self-employed and wage earners was considerably sharper among men than among women. Of the 15 positive responses to male applicants, 12 went to wage earners and only 3 to self-employed; among women, the comparable numbers were 4 and 3.

What accounts for this apparently adverse corporate response to entrepreneurs, even in a field where self-employment is relatively common? The authors offer three possible explanations: 1) irrational discrimination; 2) qualities conducive to entrepreneurial success (for example, bias for risk-taking) differ from those conducive to success in traditional company careers; and 3) big companies require different social and political skills than small enterprises do.

In any event, whatever the reason for the response, its career implications for entrepreneurs seem disturbingly clear, suggesting strongly, as they do, that "having previously been self-employed is in itself a negative signal on the job market."

The paper, entitled "Self-Employed But Looking: A Labor Market Experiment," will be as among several thousand research reports at the Academy of Management annual meeting, to be held in Orlando from August 9th through 13th. Founded in 1936, the Academy of Management is the largest organization in the world devoted to management research and teaching. It has some 19,000 members in 110 countries, including about 11,000 in the United States. This year's annual meeting will draw more than 9,000 scholars and practitioners for sessions on a host of subjects relating to business strategy, organizational behavior, corporate governance, careers, human resources, technology development, and other management-related topics.

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