Working Paper: NBER ID: w19276
Authors: Ross Levine; Yona Rubinstein
Abstract: We disaggregate the self-employed into incorporated and unincorporated to distinguish between "entrepreneurs" and other business owners. We show that the incorporated self-employed and their businesses engage in activities that demand comparatively strong nonroutine cognitive abilities, while the unincorporated and their firms perform tasks demanding relatively strong manual skills. The incorporated selfemployed have distinct cognitive and noncognitive traits. Besides tending to be white, male, and come from higher-income families, the incorporated—as teenagers—typically scored higher on learning aptitude tests, had greater self-esteem, and engaged in more disruptive, illicit activities. The combination of "smart" and "illicit" tendencies as youths accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to past research, we find that entrepreneurs earn more per hour and work more hours than their salaried and unincorporated counterparts.
Keywords: entrepreneurship; self-employment; earnings; cognitive traits; noncognitive traits
JEL Codes: G32; J24; J3; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher cognitive and noncognitive traits (D29) | incorporated self-employment (L26) |
| incorporated self-employment (L26) | higher earnings (J31) |
| switching into incorporated self-employment (L26) | higher earnings (J31) |
| higher cognitive and noncognitive traits (D29) | higher earnings (J31) |
| incorporated self-employment (L26) | more hours worked (J22) |
| demographic variables, cognitive and noncognitive traits, and family background characteristics (I24) | likelihood of becoming an entrepreneur (L26) |
| higher learning aptitude and self-esteem (I23) | incorporated self-employment (L26) |
| history of illicit behavior (K42) | incorporated self-employment (L26) |
| sorting into incorporated self-employment (L26) | reflects entrepreneurial nature of planned activity (L26) |