Articles

The entrepreneurial earnings puzzle: Mismeasurement or real?

Thomas ASTEBRO, J. CHEN

Journal of Business Venturing

January 2014, vol. 29, pp.88-105

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Keywords: Entrepreneurship, Returns, Income underreporting

http://ssrn.com/abstract=2125887


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


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