Health insurance is the number 1 reason. Once you have a family it is very scary to have no or dodgy health insurance. If there were a way to get affordable health insurance you would see a wave of entrepreneurs unparalleled in the US.
Thats basically what I have found too. They think it's very risky to go out there on there own, and they would rather just trust that someone else is going to make the right choices in the company they are with, hopefully keeping them employed. I guess it's just a different mindset. I'd rather know that I'm the one calling the shots, I trust myself to do the right thing more then I would anyone else. When I'm unsure I have plenty of friends and mentors I can call on to help me out a bit.
A few things are certain: You definatly don't have the money to start your own oil company - and most of your collegues are not going to leave the secure post. However if your a petroleum engineer making $1million a year, if you were willing to put in a bit of hustle and bustle to build a practice up for a year or two you could probably have one hell of a consulting business going. Like I said it would probably take some time, the first few years may not be easy..but after that I'd bet you would work less then you do now and make at least as much.
Come on, the answer is obvious - most people lack either the skills or the desire to be self-employed. There are numerous downsides: 1) far more volatile earnings 2) far more responsibility and hassles 3) much more difficult 4) in many cases, it's quite lonely work 5) large financial risk 6) necessity of having or raising capital Most people like stable, predictable income, don't like taking on lots of responsibility, hate hassle, can't do difficult tasks consistently well, hate working alone or without peers, dislike taking large financial risks, and either hate or are poor at raising capital. Hence, most people prefer employment over self-employment. Another point made by Daal is as an employee you can leverage your employer's strengths. A great trader on the prop desk at Goldman will make far more income with the same skills than piking his own $100k account at IB. A great salesman will make more with a good product and marketing division behind him.
I'm no efficient market theorist but if the consulting engineer provides the same value as the employee engineer for an oil company its likely their gains would be similar as they would compete against each other(If a consulting engineer makes way more its probably because of other factors such as better marketing abilities and in marketing if one wins the others lose). My main point is that the difference between the employee value added ($1m) and his wage($400k) is the return on capital for persons behind the operation taking the risk(shareholders, creditors) with uncle sam's take right before shareholders So in the end if you want to take home most if not all of your value added its likely you will have to risk capital/borrow plus have some entreprenurial expertise, which for some might not be possible
Some busineses are getting tougher to compete without some "scale." So, you are forced to ramp-up & take on employees or independent contractors, and have office & staff overhead. Some professions have extensive liability, so you have to be very careful about new hires & even that is no guarantee you won't get sued, which is very expensive, or perhaps sued and lose which is even worse. If you don't ramp up, you get squeezed as larger "shops" have more extensive data bases, resources, support and synergies. In my profession, independent contractors make appx 50% of fees & overhead is likely 25% to 30%. So, you are giving up 20% to 25% of what you make and for that the boss does mostly everything (except the work), including generating the WORK or ASSIGNMENTS & you have more extensive resources & support staff... BF, you have internut stuff going, you may not realize that sometimes very late at night when you have a software glitch or the copier won't work and you have a deadline in a few hours, it would be nice to be able to go to someone and say "hey, your copy machine is broken, call someone to fix it." I'm still a 1-man band & I've been self-employed for like 25 years, so I'm probably unemployable for someone else. Remember, if you work for someone they can occasionally throw you a crappy job & you have to do it. As the "boss", I can still say NO when a client calls, which I did this past week. I have a buddy who went to work for a national firm - he had 3 kids entering college (twins & a step-child) & he just couldn't risk almost $100,000/year in tuition/room/board on his own, so he bit the bullet & took a desk at a big "shop". Its not as simplistic as you suggest.
Specialization is another reason. Take an IT guy for an easy example. If he cuts loose from his steady paycheck to hang out a shingle, he now has a lot of other duties. Like invoicing customers, finding new gigs, dealing with purchase departments etc. When I was a self employed consultant, I spent about 1/4 of my time doing stuff that I couldn't bill for. Plus that 25% was stuff I didn't like much - I'd rather be doing consultant stuff. And it always seemed like either I was working a project and billing as many hours as I could so no time to take a vacation or time off - or I was hustling around trying to find new work - no time off then either. Sure, I could just take some downtime, but a vacation is a lot more relaxing (to me) if I don't have to worry about trying to find work, or that I am missing some great opportunity. There are many trade-offs. It's not a cut & dried decision by any means.
It has gotten to the point where you need to have several months of savings built up in order to start a business and eventually turn a profit. You won't survive very long without some emergency capital. Turning a one man operation into a billion dollar corporation would be extremely difficult these days. It may have been possible 50+ years ago, but think of all the people you need to hire on in order to start a business today. You need IT specialists, a CPA on staff, secretaries, marketing staff, perhaps lawyers. Sure, there are stories of people who started with almost nothing and became billionaires. However, they're few and far between. I believe that you need to work for at least five years in your chosen field in order to get a basic understanding of how that particular business operates. Plus, you need to have a large amount of capital saved up in order to survive on your own. It could take 5+ years before a business turns a consistent profit. I taught a few courses at a local trade school recently. This particular school specializes in electrician and HVAC technician training. When I asked the students why they were interested in becoming technicians, almost 90% of them said that they wanted to start their own business upon completion of their certificate. It's funny and somewhat sad considering that they're going to finish school with little hands on experience in the trade. The yellowpages is already full of wannabe hack contractors.