The Entrepreneurial Earnings Puzzle: Mismeasurement or Real?

Jing Chen, Thomas Åstebro

    Research output: Contribution to journalJournal articleResearchpeer-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 languageEnglish
    JournalJournal of Business Venturing
    Volume29
    Issue number1
    Pages (from-to)88-105
    ISSN0883-9026
    DOIs
    Publication statusPublished - Jan 2014

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