The entrepreneurship premium

Recent evidence suggests that entrepreneurship does not pay enough to compensate people for the risk that it entails. It sometimes even shows an entrepreneurship discount. This paper shows that such a discount can arise if entrepreneurial skills and working skills are negatively correlated in the po...

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Bibliographic Details
Published in:Small business economics 2019-10, Vol.53 (3), p.555-568
Main Author: Jovanovic, Boyan
Format: Article
Language:English
Subjects:
Business and Management
Corporate profits
Entrepreneurs
Entrepreneurship
Falls
Industrial Organization
Management
Microeconomics
Occupational choice
Scarcity
Wages & salaries
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Summary:Recent evidence suggests that entrepreneurship does not pay enough to compensate people for the risk that it entails. It sometimes even shows an entrepreneurship discount. This paper shows that such a discount can arise if entrepreneurial skills and working skills are negatively correlated in the population of agents. The paper also shows that in an otherwise standard occupational choice setting, the entrepreneurship premium rises with entrepreneurial scarcity and falls with their span of control. Finally, liquidity constraints on startups raise the entrepreneurship premium by lowering the equilibrium wage.
ISSN:0921-898X
1573-0913
DOI:10.1007/s11187-019-00234-w