The Returns to Entrepreneurship: Evidence from Matched Person-firm Data ^*

Abstract

Empirical studies show low pecuniary returns as a result of switching from wage employment to entrepreneurship. We reconsider the pecuniary gains attributable to this switching by using an event study design and a variety of identifying assumptions aimed at obtaining robust estimates of causal effects. An earnings equation is estimated on data covering the whole Norwegian population of individuals matched to the entire population of firms established in the period 2002–2013. We find unambiguous evidence that the average returns to entrepreneurship are negative for individuals entering entrepreneurship through self-employment and positive, but modest for incorporated startups. The positive returns to incorporated entrepreneurship comes at the cost of much higher income risk: incorporated entrepreneurs experience an increase in the standard deviation of log earnings growth of almost 75% compared to remaining in wage employment. While there is a huge gender gap in entrepreneurship rates, we find no significant difference between men and women in the average returns to entrepreneurship.

Citation

van Praag, M. and Raknerud, A. (2021), "The Returns to Entrepreneurship: Evidence from Matched Person-firm Data ^* ", Polachek, S.W., Tatsiramos, K., Russo, G. and van Houten, G. (Ed.) Workplace Productivity and Management Practices (Research in Labor Economics, Vol. 49), Emerald Publishing Limited, Leeds, pp. 207-238. https://doi.org/10.1108/S0147-912120210000049008