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If you are so smart, why aren’t you an Entrepreneur?

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Author Info
Joop Hartog () (University of Amsterdam)
Mirjam van Praag () (University of Amsterdam, IZA, and Max Planck Institute of Economics)
Justin van der Sluis (University of Amsterdam, and IZA)

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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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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-073/3.

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Date of creation: 12 Aug 2008
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Handle: RePEc:dgr:uvatin:20080073

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Web page: http://www.tinbergen.nl/

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Related research
Keywords: (Non-)Cognitive abilities; intelligence; earnings; entrepreneur(ship); wage employment; income differentials;

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Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups

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    Other versions:
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    Other versions:
  3. C. Mirjam van Praag & Peter H. Versloot, 2007. "What Is the Value of Entrepreneurship? A Review of Recent Research," IZA Discussion Papers 3014, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Silva, Olmo, 2007. "The Jack-of-All-Trades entrepreneur: Innate talent or acquired skill?," Economics Letters, Elsevier, vol. 97(2), pages 118-123, November. [Downloadable!] (restricted)
    Other versions:
  5. Justin van der Sluis & Mirjam van Praag & Wim Vijverberg, 2003. "Entrepreneurship Selection and Performance," Tinbergen Institute Discussion Papers 03-046/3, Tinbergen Institute, revised 24 Sep 2004. [Downloadable!]
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    Other versions:
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  16. Justin van der Sluis & Mirjam van Praag & Wim Vijverberg, 2008. "Education And Entrepreneurship Selection And Performance: A Review Of The Empirical Literature," Journal of Economic Surveys, Blackwell Publishing, vol. 22(5), pages 795-841, December. [Downloadable!] (restricted)
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  18. Murnane, Richard J. & Willett, John B. & Braatz, M. Jay & Duhaldeborde, Yves, 2001. "Do different dimensions of male high school students' skills predict labor market success a decade later? Evidence from the NLSY," Economics of Education Review, Elsevier, vol. 20(4), pages 311-320, August. [Downloadable!] (restricted)
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