TY - JOUR
T1 - If You Are So Smart, Why Aren't You an Entrepreneur? Returns to Cognitive and Social Ability
T2 - Entrepreneurs Versus Employees
AU - Hartog, Joop
AU - Van Praag, Mirjam
AU - Van Der Sluis, Justin
PY - 2010/12/1
Y1 - 2010/12/1
N2 - How valuable are cognitive and social abilities for entrepreneurs' relative to employees' earnings? We answer three questions: (1) To what extent does a composite measure of ability affect an entrepreneur's earnings relative to wages earned by employees? (2) Do different cognitive abilities (e.g., math ability, language, or verbal 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 (difference-of-difference) estimates of the returns to ability for spells in entrepreneurship versus wage employment account for selectivity into entrepreneurial positions insofar as they are determined by fixed individual characteristics. Our robust results provide the following answers to the three questions: General ability has a stronger impact on entrepreneurial incomes than on wages. Moreover, entrepreneurs and employees benefit from different sets of specific abilities: verbal and clerical abilities have a stronger impact on wages, whereas mathematical, social, and technical ability are more valuable for entrepreneurs. 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.
AB - How valuable are cognitive and social abilities for entrepreneurs' relative to employees' earnings? We answer three questions: (1) To what extent does a composite measure of ability affect an entrepreneur's earnings relative to wages earned by employees? (2) Do different cognitive abilities (e.g., math ability, language, or verbal 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 (difference-of-difference) estimates of the returns to ability for spells in entrepreneurship versus wage employment account for selectivity into entrepreneurial positions insofar as they are determined by fixed individual characteristics. Our robust results provide the following answers to the three questions: General ability has a stronger impact on entrepreneurial incomes than on wages. Moreover, entrepreneurs and employees benefit from different sets of specific abilities: verbal and clerical abilities have a stronger impact on wages, whereas mathematical, social, and technical ability are more valuable for entrepreneurs. 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.
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U2 - 10.1111/j.1530-9134.2010.00274.x
DO - 10.1111/j.1530-9134.2010.00274.x
M3 - Article
AN - SCOPUS:78649604915
SN - 1058-6407
VL - 19
SP - 947
EP - 989
JO - Journal of Economics and Management Strategy
JF - Journal of Economics and Management Strategy
IS - 4
ER -