Journal
JOURNAL OF POLITICAL ECONOMY
Volume 108, Issue 3, Pages 604-631Publisher
UNIV CHICAGO PRESS
DOI: 10.1086/262131
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Possible explanations fur earnings differentials in self-employment and paid employment are investigated. The empirical results suggest that the nonpecuniary benefits of self-employment are sub-stantial: Most entrepreneurs enter and persist ill business despite the fact that they have both lower initial earnings and lower earnings growth than in paid employment, implying a median earnings differential of 35 percent for individuals in business for 10 years. The differential cannot be explained by the selection of low-ability employees into self-employment and is similar for three alternative measures of self-employment earnings and across industries. Furthermore, the estimated earnings differentials may understate the differences in compensation across sectors since fringe benefits are not included in the measure of employee compensation.
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