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If You Are So Smart, Why Aren't You an Entrepreneur? Returns to Cognitive and Social Ability: Entrepreneurs Versus Employees

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  • Joop Hartog
  • Mirjam Van Praag
  • Justin Van Der Sluis

Abstract

How valuable are cognitive and social abilities for entrepreneurs’ incomes as compared to employees? We answer three questions: (1) To what extent does a composite measure of ability affect an entrepreneur's earnings relative to employees? (2) Do different cognitive abilities (e.g. math ability, language ability) and social ability affect earnings of entrepreneurs and employees differently?, and (3) Does the balance in these measured ability levels affect an individual's earnings? Our individual fixed-effects estimates of the differential returns to ability for spells in entrepreneurship versus wage employment account for selectivity into entrepreneurial positions as determined by fixed individual characteristics. General ability has a stronger impact on entrepreneurial incomes than on wages. Entrepreneurs and employees benefit from different sets of specific abilities: Language and clerical abilities have a stronger impact on wages, whereas mathematical, social and technical ability affect entrepreneurial incomes more strongly. The balance in the various kinds of ability also generates a higher income, but only for entrepreneurs: This finding supports Lazear's Jack-of-all-Trades theory.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 19 (2010)
Issue (Month): 4 (December)
Pages: 947-989

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Handle: RePEc:bla:jemstr:v:19:y:2010:i:4:p:947-989

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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References

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Citations

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Cited by:
  1. Elisabeth Bublitz & Florian Noseleit, 2011. "The Skill Balancing Act: Determinants of and Returns to Balanced Skills," Jena Economic Research Papers 2011-025, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Stuetzer, Michael & Obschonka, Martin & Schmitt-Rodermund, Eva, 2012. "Balanced skills among nascent entrepreneurs," MPRA Paper 37524, University Library of Munich, Germany.
  3. Laura Rosendahl Huber & Randolph Sloof & Mirjam van Praag, 2012. "The Effect of Early Entrepreneurship Education: Evidence from a Randomized Field Experiment," Tinbergen Institute Discussion Papers 12-041/3, Tinbergen Institute.
  4. Hsieh, Chihmao & Parker, Simon C. & van Praag, Mirjam, 2011. "Risk, Balanced Skills and Entrepreneurship," IZA Discussion Papers 6200, Institute for the Study of Labor (IZA).
  5. Veronique Schutjens & Niels Bosma & Jolanda Hessels & Mirjam Van Praag & Ingrid Verheul, 2011. "The strength of a good example: How important are role models for early-stage entrepreneurs?," ERSA conference papers ersa10p531, European Regional Science Association.
  6. Delia Furtado & Nikolaos Theodoropoulos, 2009. "Intermarriage and Immigrant Employment: The Role of Networks," CReAM Discussion Paper Series 0906, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  7. van Praag, Mirjam & van Witteloostuijn, Arjen & van der Sluis, Justin, 2009. "Returns for Entrepreneurs vs. Employees: The Effect of Education and Personal Control on the Relative Performance of Entrepreneurs vs. Wage Employees," IZA Discussion Papers 4628, Institute for the Study of Labor (IZA).
  8. Braunerhjelm, Pontus & Broström, Anders & Åstebro, Thomas, 2012. "Does Academic Entrepreneurship Pay?," Working Paper Series in Economics and Institutions of Innovation 289, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  9. Joanna Tyrowicz & Joanna Nestorowicz, 2010. "Cynicism Starts Young: Age and Entrepreneurship over Transition," Working Papers 2010-02, Faculty of Economic Sciences, University of Warsaw.
  10. Aurora A.C. Teixeira & Rosa Portela Forte, 2009. "Unbounding entrepreneurial intents of university students: a multidisciplinary perspective," FEP Working Papers 322, Universidade do Porto, Faculdade de Economia do Porto.

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