The Unobserved Returns from Entrepreneurship

45 Pages Posted: 25 Aug 2015

See all articles by Sarada

Sarada

Wisconsin School of Business

Date Written: June 12, 2015

Abstract

This paper is an empirical study of the risk-return trade-off faced by entrepreneurs. It calls into question a longstanding empirical puzzle: that most entrepreneurs preserve despite persistently low earnings and earnings growth. I find that entrepreneurial earnings are severely mismeasured and opt instead to use household expenditure and wealth as income proxies. Using 38 years of longitudinal data, I find that while individuals (mis)report earning on average 26.2% less in self-employment, their household expenditures are in fact 4.5% higher. This expenditure premium accrues over time with longer experience in self-employment, and is not offset by lower savings or higher uncertainty.

Keywords: risk-return tradeoff; occupational choice; self-employment; entrepreneurship; consumption; savings

JEL Classification: E21, E24, E26, G11, H26, J2

Suggested Citation

Sarada, The Unobserved Returns from Entrepreneurship (June 12, 2015). Available at SSRN: https://ssrn.com/abstract=2650636 or http://dx.doi.org/10.2139/ssrn.2650636

Sarada (Contact Author)

Wisconsin School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
79
Abstract Views
836
Rank
591,692
PlumX Metrics