The entrepreneurial earnings puzzle: Mismeasurement or real?

Thomas B. Astebro (1) , Jing Chen (2)

1 GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC
2 Copenhagen Business School

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.

Mots clés: Entrepreneurship; Returns; Income underreporting

Domaines: Stratégie et politique d’entreprise

Thomas B. Astebro, Jing Chen. The entrepreneurial earnings puzzle: Mismeasurement or real?. Journal of Business Venturing, 2014, 29 (1), pp.88-105. ⟨10.1016/j.jbusvent.2013.04.003⟩. ⟨hal-00829057⟩