The entrepreneurial earnings puzzle: Mismeasurement or real?


Journal of Business Venturing

janvier 2014, vol. 29, pp.88-105

Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Mots clés : Entrepreneurship; Returns; Income underreporting

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