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Why Are the Returns to Education Higher for Entrepreneurs than for Employees?

Author

Listed:
  • van der Sluis, Justin

    (University of Amsterdam)

  • van Praag, Mirjam C.

    (Copenhagen Business School)

  • van Witteloostuijn, Arjen

    (University of Antwerp)

Abstract

We compare the returns to education (RTE) for entrepreneurs and employees, based on 19 waves of the NLSY database. By using instrumental variable techniques (IV) and taking account of selectivity, we find that the RTE are significantly higher for entrepreneurs than for employees (18.3 percent and 9.9 percent, respectively). We perform various analyses in an attempt to explain the difference. We find (indirect) support for the argument that the higher RTE for entrepreneurs is due to fewer (organizational) constraints faced by entrepreneurs when optimizing the profitable employment of their education.

Suggested Citation

  • van der Sluis, Justin & van Praag, Mirjam C. & van Witteloostuijn, Arjen, 2007. "Why Are the Returns to Education Higher for Entrepreneurs than for Employees?," IZA Discussion Papers 3058, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3058
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    Citations

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    Cited by:

    1. Peter van der Zwan & Ingrid Verheul & Roy Thurik & Isabel Grilo, 2009. "Entrepreneurial Progress: Climbing the Entrepreneurial Ladder in Europe and the US," Tinbergen Institute Discussion Papers 09-070/3, Tinbergen Institute, revised 17 Mar 2010.
    2. Zara Daghbashyan & Björn Hårsman, 2014. "University choice and entrepreneurship," Small Business Economics, Springer, vol. 42(4), pages 729-746, April.
    3. C. Praag & Peter Versloot, 2007. "What is the value of entrepreneurship? A review of recent research," Small Business Economics, Springer, vol. 29(4), pages 351-382, December.
    4. Joern H. Block & Marcus Wagner, 2010. "Necessity and Opportunity Entrepreneurs in Germany: Characteristics and Earning s Differentials," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(2), pages 154-174, April.
    5. Douhan, Robin & van Praag, Mirjam C., 2009. "Entrepreneurship, Wage Employment and Control in an Occupational Choice Framework," IZA Discussion Papers 4211, Institute of Labor Economics (IZA).
    6. Joop Hartog & Mirjam Van Praag & Justin Van Der Sluis, 2010. "If You Are So Smart, Why Aren't You an Entrepreneur? Returns to Cognitive and Social Ability: Entrepreneurs Versus Employees," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(4), pages 947-989, December.
    7. Francesco Ferrante, 2009. "Education, Aspirations and Life Satisfaction," Kyklos, Wiley Blackwell, vol. 62(4), pages 542-562, November.
    8. Víctor M. González Sánchez, 2018. "Self-employment, Knowledge and Economic Growth: An empirical study for Latin American countries," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(4), December.
    9. Iversen Jens & Malchow-Møller Nikolaj & Sørensen Anders, 2011. "The Returns to Education in Entrepreneurship: Heterogeneity and Non-Linearities," Entrepreneurship Research Journal, De Gruyter, vol. 1(3), pages 1-38, July.
    10. Daghbashyan, Zara & Hårsman, Björn, 2012. "Entrepreneurship and Arts Related Education," Working Paper Series in Economics and Institutions of Innovation 295, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    11. Hessel Oosterbeek & Mirjam van Praag & Auke IJsselstein, 2008. "The impact of entrepreneurship education on entrepreneurship competencies and intentions: An evaluation of the Junior Achievement Student Mini-Company Program," Jena Economics Research Papers 2008-027, Friedrich-Schiller-University Jena.
    12. Ivar Kolstad & Arne Wiig, 2015. "Education and entrepreneurial success," Small Business Economics, Springer, vol. 44(4), pages 783-796, April.
    13. Víctor M. González-Sánchez & Antonio Martínez Raya & Susana de los Ríos-Sastre, 2020. "An Empirical Study for European Countries: Factors Affecting Economic Growth and Self-Employment by Gender," Sustainability, MDPI, vol. 12(22), pages 1-15, November.
    14. Kolstad, Ivar & Wiig, Arne & Moazzem, Khondaker Golam, 2014. "Returns to education among entrepreneurs in Bangladesh," Journal of Asian Economics, Elsevier, vol. 34(C), pages 54-65.
    15. Peter Van Der Zwan & Ingrid Verheul & Roy Thurik & Isabel Grilo, 2013. "Entrepreneurial Progress: Climbing the Entrepreneurial Ladder in Europe and the United States," Regional Studies, Taylor & Francis Journals, vol. 47(5), pages 803-825, May.
    16. Oosterbeek, Hessel & van Praag, Mirjam & Ijsselstein, Auke, 2010. "The impact of entrepreneurship education on entrepreneurship skills and motivation," European Economic Review, Elsevier, vol. 54(3), pages 442-454, April.

    More about this item

    Keywords

    entrepreneurship; self-employment; returns to education employment;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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