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Who becomes an entrepreneur? Labor market prospects and occupational choice

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  • Poschke, Markus

Abstract

This paper provides new theory and evidence on the relationship between ability and entrepreneurship. I show that there is a U-shaped relationship between the probability of entrepreneurship and both a person's schooling and wage when employed. This pattern can be explained in a model of occupational choice between wage work and entrepreneurship where a firm's productivity is uncertain before entry, potential wages are heterogeneous, and expected productivity is positively related to an entrepreneur's potential wage. Search, or the ability to keep good projects and reject bad ones, attracts low-ability agents into entrepreneurship. The model also explains why low-profit firms do not always exit.

Suggested Citation

  • Poschke, Markus, 2013. "Who becomes an entrepreneur? Labor market prospects and occupational choice," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 693-710.
  • Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:693-710
    DOI: 10.1016/j.jedc.2012.11.003
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    More about this item

    Keywords

    Occupational choice; Entrepreneurship; Firm entry; Selection; Search;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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