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If you are so smart, why aren't you an Entrepreneur?

Author

Listed:
  • Joop Hartog

    (University of Amsterdam)

  • Mirjam van Praag

    (University of Amsterdam, IZA, and Max Planck Institute of Economics)

  • Justin van der Sluis

    (University of Amsterdam, and IZA)

Abstract

How valuable are cognitive and social abilities for entrepreneurs’ incomes as compared to employees? We answer three questions: (1) To what extent does a composite measure of ability affect an entrepreneur's earnings relative to employees? (2) Do different cognitive abilities (e.g. math ability, language ability) and social ability affect earnings of entrepreneurs and employees differently?, and (3) Does the balance in these measured ability levels affect an individual's earnings? Our individual fixed-effects estimates of the differential returns to ability for spells in entrepreneurship versus wage employment account for selectivity into entrepreneurial positions as determined by fixed individual characteristics. General ability has a stronger impact on entrepreneurial incomes than on wages. Entrepreneurs and employees benefit from different sets of specific abilities: Language and clerical abilities have a stronger impact on wages, whereas mathematical, social and technical ability affect entrepreneurial incomes more strongly. The balance in the various kinds of ability also generates a higher income, but only for entrepreneurs: This finding supports Lazear's Jack-of-all-Trades theory. This discussion paper resulted in a publication in the Journal of Economics and Management Strategy 19(4), 947-89.

Suggested Citation

  • Joop Hartog & Mirjam van Praag & Justin van der Sluis, 2008. "If you are so smart, why aren't you an Entrepreneur?," Tinbergen Institute Discussion Papers 08-073/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20080073
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    References listed on IDEAS

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    Cited by:

    1. Aurora A.C. Teixeira & Rosa Portela Forte, 2009. "Unbounding entrepreneurial intents of university students: a multidisciplinary perspective," FEP Working Papers 322, Universidade do Porto, Faculdade de Economia do Porto.
    2. Douhan, Robin & van Praag, Mirjam C., 2009. "Entrepreneurship, Wage Employment and Control in an Occupational Choice Framework," IZA Discussion Papers 4211, Institute of Labor Economics (IZA).
    3. Dirk Dohse & Sascha G. Walter, 2010. "The role of entrepreneurship education and regional context in forming entrepreneurial intentions," Working Papers 2010/18, Institut d'Economia de Barcelona (IEB).

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    More about this item

    Keywords

    (Non-)Cognitive abilities; intelligence; earnings; entrepreneur(ship); wage employment; income differentials;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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