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The entrepreneurial earnings puzzle: Mismeasurement or real?

Author

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  • Thomas B. Astebro

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Jing Chen

    (Copenhagen Business School - CBS - Copenhagen Business School [Copenhagen])

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 15 years, 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

  • Thomas B. Astebro & Jing Chen, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Post-Print hal-00829057, HAL.
    • Handle: RePEc:hal:journl:hal-00829057
    DOI: 10.1016/j.jbusvent.2013.04.003
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