“Variety” in one form or another can be predictive of an individual’s choice to pursue self-employment, whether it is preference for variety, actual experience of variety, or a combination of both. Variety in experiences can manifest itself in different ways. Sources of knowledge about entrepreneurship can appear in family history, among friends, in education, in the media, etc. It can also appear, most significantly, in an individual’s employment history. However, variety of this kind as a predictor for choosing self-employment can lead to very confusing results if not integrated into the context in which it actually plays a causal role. Sometimes, taste for variety causes varied work experiences; other times, varied work experiences can cause taste for variety. In other cases, taste does not even enter the picture except in the obvious case of “taste for subsistence”: some people hold different jobs only by necessity.
In light of this, Van Praag and Van Ophem (1995) wisely draw a distinction between influences on self-employment based on willingness versus opportunity. Their model’s estimation suggests that many young Americans possess the willingness to switch for self-employment, but lack the opportunities (primarily capital) to switch. More generally, they find that entrepreneurial abilities that compensate for lack of capital are rare. While taste for variety can be represented by variety in prior work experience, this potentially confuses issues of willingness with issues of opportunity even before we confront the same problem with regard to entrepreneurial choice.
One way of sidestepping this confusion is by actually modeling individuals’ decision-making processes instead of externally tracking their data over time to discover predictors of their choices. Its parameters can be found by observing directly what an individual values, both by questioning and by measuring business and non-business variables. Opportunity-related variables (e.g., wealth, credit access) can be integrated later in order to answer the actual broader question of who becomes a functioning entrepreneur. First, however, variety in taste or experience among other things must be used to ascertain willingness (or even predict attempts) for self-employment.
Summary of Katz (1992) Psychosocial Cognitive Model
Focusing solely on the choice to become self-employed or not (a simpler explanatory objective), variety of at least some kind certainly makes a difference. Katz (1992) proposes a psychosocial cognitive model (PCM) of employment status choice. It utilizes individuals’ psychology (through values and decision-making processes) as well as personal history and social context as factors having an effect upon decision-making.
The individual’s decision process begins with some kind internal discovery or external change (a changed awareness or dissonance) interacting with that person’s values. “Push” or “pull” effects can effectively describe this process (as explained in Vesper (1990)). The values likely to trigger an employment decision making process include desires for autonomy, creativity, material gain and power, and social integration.
The decision process consists of considering employment alternatives. The main source of these opportunities is one’s memories, and the heuristic of availability is a statistical means of representing the likelihood of retrieving information about opportunities as a function of its presence in the individual’s memory. The information, in turn, is determined by past exposure to such information. Katz (1992) specifically uses family, education, peers, prior work, and cohorts (age, racial, gender, ethnic, and geographic) as sources of experience about employment alternatives.
Once a set of alternatives is developed, it is evaluated against the initial dissonance. If the set is satisfactory, the individual begins the process of selection. If it is unsatisfactory, the individual either searches for more possibilities from memory (repeating the availability cycle), or constructs new possibilities. The most likely form of construction is the generalization of past work experiences to new ones, such as a former computer repairman considering building and selling new computers out of his home. Another, less likely form of construction is the creation of novel alternatives that directly solve the dissonance that caused the initial search. For example, if a strong force that caused someone to be unemployed was inflexible work hours, an alternative containing a satisfactory work schedule will be included in the set of alternatives.
Finally, the development of the set of alternatives completes and the agent must choose a course of action. The representativeness heuristic, from Tversky and Kahneman (1974), underlies this process. It refers to the individual’s assessment of the likelihood that an alternative will lead to a preferred outcome (like financial success). While maximization of likelihood is generally preferred, qualitatively rational processes play a large role. Alternatives are chosen on the basis of factors such as how well they fit the agent’s values or how familiar they are. Following that initial decision, the implementation of the alternative is constrained by environmental factors which can affect whether action will be taken or not. This can be compensated for by a second round of PCM; while the first round explores what the individual wants to do, the second round explores how he wants to do it.
Katz (1981)
In order to attempt the model, Katz (1981) drew 17 variables from the Panel Study of Income Dynamics, some of which he utilized as proxies for general breadth of work experience- exposure to variety- and some which were proxies for more direct exposures to work experiences through the individual’s own work, through family, or through membership in groups with above-average tendencies toward self-employment. Incorporating variables such as these should lead to much more reliable results than using the traditional handful of experience surrogates.
The 17 variables are as follows:
1. Father’s Self-Employment
2. Father’s Education
3. Employment Status of Respondent’s First Job
4. Number of Different Jobs Held
5. Age is Young (16-30) or Old (55-98)
6. Gender is Male
7. Ethnicity in High Self-employment Incidence Group
8. Own Education Less Than High School
9. Exposure to Variety: Reads newspaper
10. Exposure to Variety: Watches Television
11. Exposure to Variety: Goes to Religious Services
12. Exposure to Variety: Goes to Social Clubs or Organizations
13. Exposure to Variety: Goes to Bars or Taverns
14. Exposure to Variety: Belongs to Labor Union
15. Exposure to Variety: Known by Name to Neighbors
16. Exposure to Variety: Relatives Within Walking Distance
17. Exposure to Variety: Farm/Small Town Childhood
Outcomes were categorized in 5 possibilities: changes from wage-or-salaried work to self-employment, from one wage-or-salaried job to another, from self-employment to wage-or-salaried work, and no-change in status for the wage-or-salaried or the self-employed. This variable set mostly focuses on a “first-round” mode of thinking about self-employment (“what would he do if he could?”). Nonetheless, broadly speaking, a PCM approach fundamentally copes better with the problems that arise from one’s willingness to become self-employed in conflict with his opportunity to do so. Instead of considering variables of willingness and opportunity separately and then combining them to form a model, the PCM could potentially assess the actual point at which these variables interact: within the cognitive processes of the individual.
This is reflected by the advantages to the model cited by Katz. A PCM approach strongly favors the incorporation of a vaster scope of qualitative data to accommodate consistent qualitative findings, such as the self-employment choices of children of self-employed parents. The model, by virtue of the fact that it avoids pure econometric analysis, also demonstrates robustness when provided with non-ideal data sets. Katz claims that after operationalizing about one-half of the Katz (1981) model, almost 42% of cases’ placements were predicted correctly (out of 5 choices, with which a random selection would yield 20% correct prediction). Ultimately, constructing a cognitive model that models decision-making can yield different and new insights compared to traditional, occupational tracking models.
Citations:
Jerome A. Katz. A psychosocial cognitive model of employment status choice. Entrepreneurship: Theory and Practice 17.n1 (Fall 1992): pp29(8).
C. Mirjam Van Praag, Hans Van Ophem (1995)
Determinants of Willingness and Opportunity to Start as an Entrepreneur
Kyklos 48 (4), 513–540.