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Entrepreneurship, Wage Employment and Control in an Occupational Choice Framework

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Author Info

  • Douhan, Robin

    ()
    (IFN - Research Institute of Industrial Economics)

  • van Praag, Mirjam C.

    ()
    (Copenhagen Business School)

Abstract

We combine two empirical observations in a general equilibrium occupational choice model. The first is that entrepreneurs have more control than employees over the employment of and accruals from assets, such as human capital. The second observation is that entrepreneurs enjoy higher returns to human capital than employees. We present an intuitive model showing that more control (observation 1) may be an explanation for higher returns (observation 2); its main outcome is that returns to ability are higher in higher control environments. This provides a theoretical underpinning for the control-based explanation for higher returns to human capital for entrepreneurs.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4211.

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Length: 27 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4211

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Keywords: entrepreneurship; ability; occupational choice; human capital; wage structure;

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References

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  1. C. Praag & Peter Versloot, 2007. "What is the value of entrepreneurship? A review of recent research," Small Business Economics, Springer, Springer, vol. 29(4), pages 351-382, December.
  2. 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, Wiley Blackwell, Wiley Blackwell, vol. 22(5), pages 795-841, December.
  3. Silva, Olmo, 2007. "The Jack-of-All-Trades entrepreneur: Innate talent or acquired skill?," Economics Letters, Elsevier, Elsevier, vol. 97(2), pages 118-123, November.
  4. Philip Oreopoulos, 2006. "Estimating Average and Local Average Treatment Effects of Education when Compulsory Schooling Laws Really Matter," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 152-175, March.
  5. Uschi Backes-Gellner & Arndt Werner, 2007. "Entrepreneurial Signaling via Education: A Success Factor in Innovative Start-Ups," Small Business Economics, Springer, Springer, vol. 29(1), pages 173-190, June.
  6. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers, University of Oxford, Department of Economics 99125, University of Oxford, Department of Economics.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  8. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(3), pages 604-631, June.
  9. Parker, Simon C. & van Praag, C. Mirjam, 2006. "Schooling, Capital Constraints, and Entrepreneurial Performance: The Endogenous Triangle," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 24, pages 416-431, October.
  10. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 769-97, August.
  11. van der Sluis, Justin & van Praag, Mirjam C. & van Witteloostuijn, Arjen, 2007. "Why Are the Returns to Education Higher for Entrepreneurs than for Employees?," IZA Discussion Papers 3058, Institute for the Study of Labor (IZA).
  12. J. Wagner, 2003. "Testing Lazear's jack-of-all-trades view of entrepreneurship with German micro data," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(11), pages 687-689.
  13. Joop Hartog & Mirjam van Praag & Justin van der Sluis, 2008. "If you are so smart, why aren't you an Entrepreneur?," Tinbergen Institute Discussion Papers, Tinbergen Institute 08-073/3, Tinbergen Institute.
  14. Levin, Jesse & Plug, Erik J. S., 1999. "Instrumenting education and the returns to schooling in the Netherlands," Labour Economics, Elsevier, Elsevier, vol. 6(4), pages 521-534, November.
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Cited by:
  1. Frank M. Fossen & Tobias J. M. Büttner, 2012. "The Returns to Education for Opportunity Entrepreneurs, Necessity Entrepreneurs, and Paid Employees," Discussion Papers of DIW Berlin 1241, DIW Berlin, German Institute for Economic Research.
  2. van Praag, Mirjam C. & 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).

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