The Entrepreneurial Earnings Puzzle: Mismeasurement or Real?

Jing Chen; Thomas  Åstebro

doi:10.1016/j.jbusvent.2013.04.003

The Entrepreneurial Earnings Puzzle: Mismeasurement or Real?

Jing Chen, Thomas Åstebro

Research output: Contribution to journal › Journal article › Research › peer-review

Abstract

A review of recent evidence on relative earnings from entrepreneurship versus wage work presents a puzzle: why do individuals become entrepreneurs when entrepreneurs on average apparently earn less than employees? After considering several potential explanations, we empirically analyze one: income underreporting by entrepreneurs. Using a nationwide panel survey representing U.S. households over 15 years, we estimate that entrepreneurs on average earn 4% less per year than employees. However, after correcting for income underreporting, the mean financial gain to entrepreneurship is positive and large, greater than 42%. However, we show that this estimate is built on some unpalatable model assumptions.

Original language	English
Journal	Journal of Business Venturing
Volume	29
Issue number	1
Pages (from-to)	88-105
ISSN	0883-9026
DOIs	https://doi.org/10.1016/j.jbusvent.2013.04.003
Publication status	Published - Jan 2014

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10.1016/j.jbusvent.2013.04.003

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Cite this

Chen, J., & Åstebro, T. (2014). The Entrepreneurial Earnings Puzzle: Mismeasurement or Real? Journal of Business Venturing, 29(1), 88-105. https://doi.org/10.1016/j.jbusvent.2013.04.003

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abstract = "A review of recent evidence on relative earnings from entrepreneurship versus wage work presents a puzzle: why do individuals become entrepreneurs when entrepreneurs on average apparently earn less than employees? After considering several potential explanations, we empirically analyze one: income underreporting by entrepreneurs. Using a nationwide panel survey representing U.S. households over 15 years, we estimate that entrepreneurs on average earn 4% less per year than employees. However, after correcting for income underreporting, the mean financial gain to entrepreneurship is positive and large, greater than 42%. However, we show that this estimate is built on some unpalatable model assumptions.",

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