The higher returns to formal education for entrepreneurs versus employees

Mirjam Van Praag*, Arjen van Witteloostuijn, Justin van der Sluis

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

How valuable is formal education for entrepreneurs' income relative to employees'? And if the income returns to formal education are different for entrepreneurs vis-à-vis employees, what might be a plausible explanation? To explore these questions, we analyze a large representative US panel. We show that entrepreneurs have higher returns to formal education than employees. We refer to this as the entrepreneurship returns puzzle. We run post hoc analyses to explore a number of potential explanations of this puzzle. Indirectly, our analysis indicates that the higher returns to formal education for entrepreneurs might be due to the fewer organizational constraints they face, leading to more personal control over how to use their human capital, compared to employees.

Original languageEnglish
Pages (from-to)375-396
Number of pages22
JournalSmall Business Economics
Volume40
Issue number2
DOIs
Publication statusPublished - 1 Jan 2013
Externally publishedYes

Keywords

  • Education
  • Entrepreneurship
  • Human capital
  • Incomes
  • Locus of control
  • Self-employment
  • Wages

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