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A psychosocial cognitive model of employment status choice.

Entrepreneurship research has long regarded the powerful influences of personal history and social context on the propensity to enter self-employment. Such historical models reflect the belief in tracking where the occupation of a parent defines the most likely occupation of the child. The model is apparent in the works of trait and behavioral researchers in entrepreneurship (Brockhaus & Horwitz, 1986), in the quantitative analyses of occupational choice pioneered by Blau and Duncan (1967) and applied most directly to the self-employed by Haller and Sewell (1967), in the more anthropological approaches of ethnic entrepreneurship such as Bonacich and Modell (1980), in the social alienation approach of Nelson (1968) or Bonjean (1966), and in efforts at the economic modelling of the intergenerational transfer of wealth (Laband & Lentz, 1983).

Tracking models as they currently exist have three major problems. First they are not widely applicable. Ethnicity, family, and social marginality models have difficulty explaining "mainstream" outcomes; and the quantitative models account for mainstream at the expense of marginal groups.

Second, existing models treat the individual decision process largely in "black box" terms, providing little insight on how family history or social forces shape the individual decision process. They serve as models of individual choice that disregard the individual.

Third, existing models cannot account for tracking "failures," where the individual fails to follow in parental occupational footsteps. In U.S. society, which prides itself on the possibility of social mobility by saying "every kid can grow up to be President" and where entry to the mainstream via the "melting pot" remains a goal if not a reality, a suitable model must account for people who follow the track and those who jump it. For often such "jumps" involve using self-employment to move up the socioeconomic status ladder.

This paper proposes a psychosocial cognitive model (PCM) of employment status choice. The model is psychosocial insofar as it utilizes an individual's psychology in the form of values and decision-making processes, and social insofar as it depends on personal history and social context as factors contributing to the decision process. It is cognitive insofar as the decision processes utilize the cognitive heuristics of availability, representativeness, and in a few cases adjustment from an anchor, to describe the process and decision likelihoods of the individual. A schematic of the model is given in Figure 1. The remainder of this paper describes the model, its contributing factors, and its operation.

The term employment status choice refers to the vocational decision process in terms of the individual's decision to enter an occupation as a wage-or-salaried individual or a self-employed one. This approach considers organizational formation from a vocational and individual-level perspective rather than the more common structural and firm-level perspective. This vocational approach to entrepreneurship reflects the theories and small sample empirical research of Schein (1978) and Ronstadt (1984; 1988). Vocational analyses of the self-employment process using large sample data sets have been reported by Carroll and Mosakowski (1987) and Katz (1990).

Under these models the decision to enter self-employment reflects a vocational choice. A person interested in the vocation of grocer can elect to be employed by others for wage or salary, or can choose to be self-employed. For the latter, the choices available are to either obtain an existing business through purchase, inheritance, or marriage, or to start a new firm. This option of starting a new firm, vs. acquiring one, represents the core of entrepreneurship according to the model proposed by Gartner (1988), but it represents a very narrow definition of entrepreneurship.

Few national surveys or government censi study entrepreneurs so defined. Instead, self-employment is the civil law commonality which unites the total population of business owners, be they founders or acquirers, small business people or entrepreneurs. Self-employment is defined by international organizations that standardize government censi, so that the term is nearly identical in meaning in every country. Because of its use in censi, government routinely uses self-employment as the means of categorizing all business owners, including entrepreneurs. Studies using such self-employed samples which then extrapolate to entrepreneurial samples include Eden's (1973; 1975) and Naughton's (1987) studies of entrepreneurial stress. In entrepreneurship research the equating of the self-employed to the entrepreneur is evident in the sociological studies of marginality among the "entrepreneur class" reviewed by Peterson (1981) and the conceptually related studies of the classic "entrepreneurial personality" (Collins & Moore, 1970; Smith, 1967; Shapero, 1975; Zaleznik & Kets de Vries, 1975).

Using this idea of studying the employment status choice, which in considering the self-employed includes virtually all other groups labelled entrepreneurs or small business owners, the PCM is presented below. The means of ordering the steps in the process comes from Weick's (1979) enactment-selection-retention model of the organizing process. This approach best reflects the potential for passive or active approaches to the choice process.


Enactment and its Precursors

The decision process can be started through any form of changed awareness or dissonance which results from a filtering of intrapsychic and external changes through the person's values. Vesper's (1990) concept of pushes and pulls is a useful description of the process of changed attention. From a psychological viewpoint the values most likely to lead to changes in awareness or dissonance are one or more of the following: Autonomy as suggested by Schein (1978), and Smith and Miner (1983); Creativity as suggested by Schein (1978), and Smith and Miner (1983); Material Gain as evidenced in the needs for achievement (McClelland, 1961; McClelland & Winter, 1969) and power (McClelland, 1975); and Integration, which is the positive solution sought by those who are alienated (Durkheim, 1960; Nelson, 1968; Bonjean, 1966).

When the decision process is started, the individual begins to consider work alternatives. The first source of such alternatives is postulated to be their own memories. The heuristic of availability provides a means of stating statistically the likelihood of retrieval of information as a function of the extent to which the information is available in the individual's memory. This in turn is due to the person's prior exposure to the information.

This model provides a statistical learning theory approach (Estes, 1976) to the idea of tracking. Growing up in a household of self-employed people, the child will come to have more examples of self-employment in his or her memory than a child growing up in a home filled with wage-or-salaried people. Family, personal, and work history all contribute to the extent to which a person is likely to have (and hence retrieve) self-employment information. Specifically, the sources of available past experience are: family, education, peers, prior work, cohorts (age, racial, gender, ethnic, and geographic). The results are jobs with their attendant employment statuses (e.g. grocer at a Safeway supermarket, grocer at a National supermarket, grocer who owns corner market, etc.), called the enacted set of alternatives.

These alternatives are tested against the dissonance-creating precursors. If the enacted set is satisfactory the individual begins the process of selection. If the set is not satisfactory, two alternatives are possible: (1) the individual attempts to pull more information from memory, or (2) the individual attempts to create more information either by enacting different alternatives from the environment or creating novel alternatives. The first alternative repeats the availability cycle. The second approach reflects the heuristic of construction. The most likely form of construction tailors past experience to the present. For example, an out-of-work police officer may look for possibilities such as security guard or private investigator. These efforts represent generalizations of prior vocational experience.

The less likely form of construction involves the creation of novel alternatives. Usually the focus of such alternatives is the resolution of the dissonance which caused the search to begin. For example, if job loss itself is the major push behind the individual's decision process, the likelihood of taking any job that becomes available increases. If the search results from a lack of autonomy at work, the alternatives constructed will focus on high-autonomy work. Such constructed alternatives are by definition satisfactory (even if such satisfaction is short-lived) and they are included in the set of alternatives being considered.


Eventually the alternative-gathering and construction process ends and the person faces the prospect of selecting an alternative. The heuristic underlying the selection process is called representatives by Tversky and Kahneman (1974). Representativeness refers to the person's assessment of the likelihood of that alternative leading to some preferred outcome, e.g. success. Alternatives that represent likely-to-be-achieved outcomes are more likely to be selected.

Representativeness is not a simple statistical prediction of success. It is subject to several imperfectly rational process processes which negate a strict econometric approach. These include: value fit (high fit outcomes are favored), availability ("better the evils we know . . ."), greater emotional commitment to personally constructed (vs. retrieved) alternatives (Staw, 1981), and association potential of the alternative to other ideas the person holds. When applied to the enacted set of alternatives, the result of the selection process is a set of enacted alternatives to which are added assessments of the likelihood of success.


The enacted set that results from the selection process is winnowed down to a single alternative through reapplications of the representativeness heuristic. This choice becomes the one on which an individual acts. The resulting decision, which can be based on highly imperfect information, may be "reasonable" but not strictly speaking logical. Whether the decision leads to action depends on the perceived opportunities in the environment. Existing research (Gilad, 1982) suggests how individuals are differentially capable of perceiving opportunities in their environments. Such approaches can be recast as another round of decision making using the psychological cognitive model, where the outcome is a specific environmental opportunity linked to the occupational and employment status choice derived in the first process. In practice this would look like "what do I want to do?" decision making in the first round, followed by "how do I do that?" decision making in the second round.


Katz (1981) demonstrated how the PCM might be operationalized for secondary analyses of large-scale surveys. Using the Panel Study of Income Dynamics (Morgan, 1972), he identified 17 variables that embodied the concept of availability. The underlying idea in a availability is that more frequently encountered alternatives are inherently more available to the person.

Table 1 identifies the 17 availability variables taken from the PSID. These measures are surrogates for general breadth of work experience, called exposure to variety, and then measures of more direct exposure to work experiences through family, one's own work, or membership in groups with higher than average incidences of self-employment.

This approach is far more extensive than the one demonstrated by Blau and Duncan (1967) or Haller and Sewell (1967), which focuses only on parents' education and occupation, and the sibling's education. Since entry into self-employment outside of inheritance situations (which was common in the farm families of Haller and Sewell) rarely tends to occur immediately after high school or college, later life experiences have a major potential for contributing to understanding and predicting self-employment. These later life experiences are what is sought by the lifestyle variables of the PCM. Because the PCM is a model of employment status choice, to be effective the model needs to work for individuals seeking salaried work and for those seeking self-employment, many of whom will start firms to achieve their ends. The PCM does this by doing a better job of account for experience among a more diverse subsample of the population than the approach originated by Blau.
Table 1
Components of the Availability Index
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

The ideal operationalization of the PCM from an entrepreneurial perspective would consist of questions asking the individuals the number of self-employed people or small businesses with which they were acquainted, and how positively they recall the person or firm. Similar questions about wage-or-salaried experiences would also need to be asked to provide a suitable comparison and contrast measure. In some surveys of work experience, mentorship, and role modelling, questions are asked about people who are key influences on career choice, and these people, along with immediate family, would also serve as above average surrogates for the ideal availability questions. Indirect approaches such as breadth of experience measures gleaned from the PSID represent an average to below average quality operationalization of the concept. However, measures such as the ones used in this example are the most common in large-scale surveys, and hence the most readily operationalizable means available to large numbers of researchers. The results produced by this approach, while not breathtaking, are substantial.

For example, the outcome measure was categorized as 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 finally no-change in status for the wage-or-salaried or the self-employed. The construction index anchored (|beta~ = .95315) the second discriminant function distinguishing employment status changers from people tending to remain in their same employment status (Wilks' Lambda ||chi.sup.2~~ = 26.202, df = 6, p |is less than~ .0002). Self-employed people who changed from wage-or-salaried work to self-employment have much higher availability scores than average, as did people who changed between wage-or-salaried jobs, and self-employed who re-entered wage-or-salaried work. People with lower availability scores are less likely to change jobs over the years.


Set up as described above, the PCM offers a possible solution to the three problems of traditional approaches. First, it is a model applicable to all vocational decision-makers. It makes direct use of biographical information such as parent, sibling, and personal work experience as quantitative predictors of self-employment choice opportunities consistent with tracking models.

Second, this process follows recognized cognitive heuristic processes, improving upon "black box" explanations of the impact of biography on individual choice. Third, where there are opportunity-value mismatches, the model posits alternative construction to occur, accounting for violations of tracking not considered in traditional models.

The two major advantages of the PCM as an explanatory model is its populism and robustness. Populism reflects how the PCM offers a way to quantitatively accommodate and explain consistent findings in entrepreneurship surrounding the entrepreneurial offspring of entrepreneurs, the individual who breaks from the established route to pursue new alternatives, and the roles of personal values, personal history, and environmental opportunities in the prediction of entrepreneurial activity.

The robustness of the PCM reflects its power under ideal and less-than-ideal data-gathering situations. The model is able to work using conventional family and vocational data from national surveys as well as tailored questionnaires. The example given above demonstrates how secondary source data can be used to operationalize the model. In that example, operationalizing approximately one-half of the model, 41.87% of cases were correctly placed in one of five employment status outcomes, where random assignment would predict a 20% correct classification. Given this degree of robustness, its widespread applicability, and its ability to deal with the three problems traditional to tracking approaches to entrepreneurial career selection, the PCM offers a worthwhile approach for future research.


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Jerome A. Katz is Associate Professor of Management and Associate Director of the Jefferson Smurfit Center for Entrepreneurial Studies at Saint Louis University.

This paper is based on the author's work at the University of Michigan, and he wishes to thank Stanley E. Seashore, Edward E. Lawler III. Edward S. Bordin, and LaRue T. Hosmer for their support of the original work. The original work was supported by grants from the University of Michigan's Department of Psychology, the Organizational Psychology program, and the Organizational Behavior Program of the Institute for Social Research. This preparation of this paper was supported by grants from Saint Louis University's Research Grant Fund and from the Summer Research Program of the School of Business and Administration at Saint Louis University. In addition, the author wishes to thank Namshin Cho, Bill Gartner, Betsy Gatewood, Cheryl Nietfeldt, Norris Krueger, Edgar Schein and Jennifer Starr for their advice and assistance in developing subsequent versions of the manuscript. The paper is based on a presentation made at the 1991 National Meeting of the Academy of Management in the symposium "Cognitive Models of Entrepreneurial Intention: Understanding Entrepreneurial Vision."
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Author:Katz, Jerome A.
Publication:Entrepreneurship: Theory and Practice
Date:Sep 22, 1992
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