Returns for Entrepreneurs versus Employees: The Effect of Education and Personal Control on the Relative Performance of Entrepreneurs vis-a-vis Wage Employees
AbstractHow 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 InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-111/3.
Date of creation: 08 Dec 2009
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entrepreneurship; self-employment; returns to education; performance; personal control; locus of control; human capital; wages; incomes;
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-EDU-2010-05-15 (Education)
- NEP-ENT-2010-05-15 (Entrepreneurship)
- NEP-HRM-2010-05-15 (Human Capital & Human Resource Management)
- NEP-LAB-2010-05-15 (Labour Economics)
- NEP-SBM-2010-05-15 (Small Business Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Monique de Haan, 2005.
"Birth Order, Family Size and Educational Attainment,"
Tinbergen Institute Discussion Papers
05-116/3, Tinbergen Institute.
- de Haan, Monique, 2010. "Birth order, family size and educational attainment," Economics of Education Review, Elsevier, vol. 29(4), pages 576-588, August.
- 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.
- Niels Bosma & Jolanda Hessels & Veronique Schutjens & Mirjam van Praag & Ingrid Verheul, 2011.
"Entrepreneurship and Role Models,"
Tinbergen Institute Discussion Papers
11-061/3, Tinbergen Institute.
- Joern H. Block & Lennart Hoogerheide & Roy Thurik, 2010. "Are Education and Entrepreneurial Income Endogenous and do Family Background Variables make Sense as Instruments? A Bayesian Analysis," Tinbergen Institute Discussion Papers 10-024/4, Tinbergen Institute.
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