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Returns for Entrepreneurs versus Employees: The Effect of Education and Personal Control on the Relative Performance of Entrepreneurs vis-a-vis Wage Employees

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Author Info

  • Mirjam van Praag

    (University of Amsterdam)

  • Arjen van Witteloostuijn

    (University of Antwerp, and Utrecht University)

  • Justin van der Sluis

    (University of Amsterdam)

Abstract

How valuable is education for entrepreneurs’ performance as compared to employees’? What might explain any differences? And does education affect peoples’ occupational choices accordingly? We answer these questions based on a large panel of US labor force participants. We show that education affects peoples’ decisions to become an entrepreneur negatively. We show furthermore that entrepreneurs have higher returns to education than employees (in terms of the comparable performance measure ‘income’). This is the case even when estimating individual fixed effects of the differential returns to education for spells in entrepreneurship versus wage employment, thereby accounting for selectivity into entrepreneurial positions based on fixed individual characteristics. We find these results irrespective of whether we control for general ability and/or whether we use instrumental variables to cope with the endogenous nature of education in income equations. Finally, we find (indirect) support for the argument that the higher returns to education for entrepreneurs is due to fewer (organizational) constraints faced by entrepreneurs when optimizing the profitable employment of their education. Entrepreneurs have more personal control over the profitable employment of their human capital than wage employees.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-111/3.

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Date of creation: 08 Dec 2009
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Handle: RePEc:dgr:uvatin:20090111

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

Related research

Keywords: entrepreneurship; self-employment; returns to education; performance; personal control; locus of control; human capital; wages; incomes;

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References

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  1. Monique de Haan, 2005. "Birth Order, Family Size and Educational Attainment," Tinbergen Institute Discussion Papers 05-116/3, Tinbergen Institute.
  2. Serden Özcan & Toke Reichstein, 2009. "Transition to Entrepreneurship from the Public Sector: Predispositional and Contextual Effects," Management Science, INFORMS, vol. 55(4), pages 604-618, April.
  3. Uschi Backes-Gellner & Arndt Werner, 2007. "Entrepreneurial Signaling via Education: A Success Factor in Innovative Start-Ups," Small Business Economics, Springer, vol. 29(1), pages 173-190, June.
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Cited by:
  1. repec:dgr:uvatin:2010024 is not listed on IDEAS
  2. Bosma, Niels & Hessels, Jolanda & Schutjens, Veronique & Praag, Mirjam Van & Verheul, Ingrid, 2012. "Entrepreneurship and role models," Journal of Economic Psychology, Elsevier, vol. 33(2), pages 410-424.

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