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The Returns to Entrepreneurship: Evidence from Matched Person-firm Data

In: Workplace Productivity and Management Practices

Author

Listed:
  • Mirjam van Praag
  • Arvid Raknerud

Abstract

Empirical studies show low pecuniary returns as a result of switching from wage employment to entrepreneurship. We reconsider the pecuniary gains attributable to this switching by using an event study design and a variety of identifying assumptions aimed at obtaining robust estimates of causal effects. An earnings equation is estimated on data covering the whole Norwegian population of individuals matched to the entire population of firms established in the period 2002–2013. We find unambiguous evidence that the average returns to entrepreneurship are negative for individuals entering entrepreneurship through self-employment and positive, but modest for incorporated startups. The positive returns to incorporated entrepreneurship comes at the cost of much higher income risk: incorporated entrepreneurs experience an increase in the standard deviation of log earnings growth of almost 75% compared to remaining in wage employment. While there is a huge gender gap in entrepreneurship rates, we find no significant difference between men and women in the average returns to entrepreneurship.

Suggested Citation

  • Mirjam van Praag & Arvid Raknerud, 2021. "The Returns to Entrepreneurship: Evidence from Matched Person-firm Data," Research in Labor Economics, in: Workplace Productivity and Management Practices, volume 49, pages 207-238, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-912120210000049008
    DOI: 10.1108/S0147-912120210000049008
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    More about this item

    Keywords

    Returns to entrepreneurship; earnings distribution; matched person-firm data; incorporated entrepreneurs; self-employment; event study design; gender gap; L26; C23; J31; G32;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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