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Returns for Entrepreneurs vs. Employees: The Effect of Education and Personal Control on the Relative Performance of Entrepreneurs vs. Wage Employees

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Author Info

  • van Praag, Mirjam

    ()
    (Copenhagen Business School)

  • van Witteloostuijn, Arjen

    ()
    (University of Antwerp)

  • van der Sluis, Justin

    ()
    (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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4628.

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Length: 34 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4628

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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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Citations

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Cited by:
  1. 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.
  2. Caliendo, Marco & Fossen, Frank M. & Kritikos, Alexander S., 2011. "Personality characteristics and the decision to become and stay self-employed," Discussion Papers 2011/9, Free University Berlin, School of Business & Economics.
  3. André van Stel & Mirjam van Praag, 2011. "The More Business Owners the Merrier? The Role of Tertiary Education," Scales Research Reports H201010, EIM Business and Policy Research.
  4. 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.
  5. André van Stel & Sander Wennekers & Jolanda Hessels & Chantal Hartog, 2011. "Global Entrepreneurship Monitor 2010 The Netherlands," Scales Research Reports A201108, EIM Business and Policy Research.
  6. Joern H. Block & Lennart Hoogerheide & Roy Thurik, 2009. "Education and Entrepreneurial Choice: An Instrumental Variables Analysis," Tinbergen Institute Discussion Papers 09-088/4, Tinbergen Institute, revised 23 Nov 2010.
  7. Jose Maria Millan & Emilio Congregado & Concepcion Roman & Mirjam van Praag & Andre van Stel, 2011. "The Value of an Educated Population for an Individual's Entrepreneurship Success," Tinbergen Institute Discussion Papers 11-066/3, Tinbergen Institute, revised 06 May 2014.

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