Entrepreneurship Does Pay

44 Pages Posted: 16 Aug 2011

See all articles by Chloe Tergiman

Chloe Tergiman

The Pennsylvania State University

Date Written: August 15, 2010


Existing evidence suggests that returns to entrepreneurship are low relative to the returns to wage work. These findings have been associated with non-pecuniary benefits, and more generally with heterogeneity in preferences, rationality or beliefs. In this paper I challenge this view. I extend the data and show that the differential in earnings is in fact U-shaped, with entrepreneurs earning more than wage workers both early and late in their lives. I argue that the difference in the earnings profile can be rationalized in the context of a life-cycle model of occupational choice where agents are fully informed, face no uncertainty, are fully rational, and ex-ante identical. I estimate this model and show that the lifetime returns to entrepreneurship can in fact be identical to those of being a wage worker.

Keywords: entrepreneurship, wage work, occupational choice, self-employment

Suggested Citation

Tergiman, Chloe, Entrepreneurship Does Pay (August 15, 2010). Available at SSRN: https://ssrn.com/abstract=1659897 or http://dx.doi.org/10.2139/ssrn.1659897

Chloe Tergiman (Contact Author)

The Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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