Does Entrepreneurship Pay? An Empirical Analysis of the Returns of Self-Employment

✍ Scribed by Hamilton, Barton H.

• Book ID: 126845991
• Publisher: University of Chicago Press
• Year: 2000
• Tongue: English
• Weight: 338 KB
• Volume: 108
• Category: Article
• ISSN: 0022-3808
• DOI: 10.1086/262131

✦ Synopsis

Possible explanations for earnings differentials in self-employment and paid employment are investigated. The empirical results suggest that the nonpecuniary benefits of self-employment are substantial: Most entrepreneurs enter and persist in business despite the fact that they have both lower initial earnings and lower earnings growth than in paid employment, implying a median earnings differential of 35 percent for individuals in business for 10 years. The differential cannot be explained by the selection of low-ability employees into self-employment and is similar for three alternative measures of self-employment earnings and across industries. Furthermore, the estimated earnings differentials may understate the differences in compensation across sectors since fringe benefits are not included in the measure of employee compensation.