It's long been accepted as fact in academic and government circles that the self-employed earn less than people with traditional jobs.
It turns out, this accepted fact could be wrong.
Bloomberg View's You Don't Have to Be Nuts to Start a Business covers an academic study that shows becoming self-employed or starting a business:
".. is a form of experimentation that can boost your prospects later in life, even if the business fails."
The study found that not only do people who are self-employed earn more over their lifetimes, their overall income risk is only slightly higher than for those with traditional jobs. Key quote:
...Manso finds that entrepreneurs experience only slightly higher lifetime earnings variance -- that is, risk -- than people who go the salaried route. In other words, the lifetime risk-return tradeoff of starting a business looks pretty attractive after all.
The reason this study finds such different lifetime earnings results than others is the study methodology. This study uses a longitudinal data set to track lifetime earnings. Other studies have used cross section data sets.
I won't bother going into detail on this approach, it's pretty wonky. If you're interested go to the study paper - Experimentation and the Returns to Entrepreneurship - to learn more.
But the bottom line is self-employment allows experimentation and learning opportunities that lead to higher lifetime earnings. This advantage of becoming self-employed is not captured in cross sectional studies, which only look at one time period.
Key quote from the academic study:
... self-employed workers experiment with new ideas when they leave the salaried workforce to become self-employed. The value of experimentation arises from the option to abandon bad ideas.
In other words, if self-employment isn't working the person either goes back to traditional employment or stays self-employed but changes how they are working. These shifts - and related income gains - aren't captured unless you use a longitudinal study to track the self-employed over time.
This is an important study primarily because, as the Bloomberg View article states, unlike prior academic studies it shows you don't have to be nuts to become self-employed.
As someone who is self-employed, this is nice to know. And yes, I sent a copy of the article to my mother.