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The entrepreneurial earnings puzzle: Mismeasurement or real?

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  • Åstebro, Thomas
  • Chen, Jing

Abstract

A review of recent evidence on relative earnings from entrepreneurship versus wage work presents a puzzle: why do individuals become entrepreneurs when entrepreneurs on average apparently earn less than employees? After considering several potential explanations, we empirically analyze one: income underreporting by entrepreneurs. Using a nationwide panel survey representing U.S. households over 15years, we estimate that entrepreneurs on average earn 4% less per year than employees. However, after correcting for income underreporting, the mean financial gain to entrepreneurship is positive and large, greater than 42%. However, we show that this estimate is built on some unpalatable model assumptions.

Suggested Citation

  • Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
    • Handle: RePEc:eee:jbvent:v:29:y:2014:i:1:p:88-105
    DOI: 10.1016/j.jbusvent.2013.04.003
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