Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/36144
Authors: 
van Praag, C. Mirjam
van Witteloostuijn, Arjen
van der Sluis, Justin
Year of Publication: 
2009
Series/Report no.: 
IZA Discussion Papers 4628
Abstract: 
How valuable is education for entrepreneurs' performance as compared to employees'? What might explain any differences? And does education affect peoples' occupational choices accordingly? We answer these questions based on a large panel of US labor force participants. We show that education affects peoples' decisions to become an entrepreneur negatively. We show furthermore that entrepreneurs have higher returns to education than employees (in terms of the comparable performance measure 'income'). This is the case even when estimating individual fixed effects of the differential returns to education for spells in entrepreneurship versus wage employment, thereby accounting for selectivity into entrepreneurial positions based on fixed individual characteristics. We find these results irrespective of whether we control for general ability and/or whether we use instrumental variables to cope with the endogenous nature of education in income equations. Finally, we find (indirect) support for the argument that the higher returns to education for entrepreneurs is due to fewer (organizational) constraints faced by entrepreneurs when optimizing the profitable employment of their education. Entrepreneurs have more personal control over the profitable employment of their human capital than wage employees.
Subjects: 
Entrepreneurship
self-employment
returns to education
performance
personal control
locus of control
human capital
wages
incomes
JEL: 
J23
J24
J31
J44
M13
Document Type: 
Working Paper

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