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The Unobserved Returns to Entrepreneurship

Sarada

University of California, Los Angeles [email protected]

This paper presents an alternative perspective to a longstanding empirical puzzle: that most entrepreneurs persevere despite persistently low earnings. Because entrepreneurial earnings are notoriously difficult to measure, I approach the question from an expenditure angle. I look at how switching into self-employment corresponds to changes in reported earnings versus expenditure. Using 45 years of longitudinal data, I find that individuals report earning 27.7% less in self-employment, while spending 3.8% more. This household expenditure premium accrues with entrepreneurial experience and is not offset by lower savings or longer work hours. The results hold in highly educated and incorporated business owner subsamples.

DOI

10.1162/rest_a_01437

Pages

1-45

Language

en

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