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Smart and Illicit: Who Becomes an Entrepreneur and Does it Pay?

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  • Ross Levine
  • Yona Rubinstein

Abstract

We disaggregate the self-employed into incorporated and unincorporated to distinguish between "entrepreneurs" and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated - as teenagers - scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of "smarts" and "aggressive/illicit/risk-taking" tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts.

Suggested Citation

  • Ross Levine & Yona Rubinstein, 2013. "Smart and Illicit: Who Becomes an Entrepreneur and Does it Pay?," CEP Discussion Papers dp1237, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1237
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    More about this item

    Keywords

    Self-employment; Occupational choice; Compensation; Firm organization; Corporate finance; Cognitive and Noncognitive traits;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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