Do Employers value entrepreneurial human capital

Do Employers value entrepreneurial human capital - Do...

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Do Employers Value Entrepreneurial Human Capital? An empirical study of post-self-employment wages EXECUTIVE SUMMARY Marlena I. Lee 1 1 Introduction In 2003, 7.5% of the labor force or about 10.3 million workers were self- employed. 2 Many of these self-employed workers quickly return to paid employment. Evidence from Canada and Great Britain suggest that average gross flows into and out of self-employment involves over 40% of self-employed workers each year. 34 Given the transitory nature of self-employment, a better understanding of the nature of transitions between self-employment and wage employment is needed. This study attempt to provide evidence on one aspect of this broader topic: how are wages impacted by self- employment experience? The few previous studies that have also looked at how previous self-employment experience impacts wages have yielded inconclusive evidence. While one study has found that self-employment experience and wage experience are valued roughly the same in the US labor market, another study reports that entrepreneurs returning to paid employment earn a higher wage than employees with similar work experience, education 1 I am grateful to Erik Hurst for many helpful discussions and am additionally thankful to Gene Fama, John Heaton, Amee Kamdar, and Toby Moskowitz for many useful comments. Research support from the Sanford J. Grossman Fellowship in Honor of Arnold Zellner and the Ewing Marion Kauffman Foundation is gratefully acknowledged. Any opinions expressed herein are the author's. 2 Hipple, S., 2004, Self-employment in the United States: An update, Monthly Labor Review, 124(7), 13- 23. 3 Lin, Z., G. Picot and J. Compton, 2000, The Entry and Exit Dynamics of Self-Employment in Canada, Journal Small Business Economics 15(2), 105-125. 4 Taylor, M. P., 1999, Survival of the Fittest? An Analysis of Self-Employment Duration in Britain, The Economic Journal 109(454), 140-155.
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and demographics. 56 In a dataset of self-employed workers in France, workers leaving self-employment earn significantly lower wages than other workers with similar characteristics, empirically confirming anecdotal evidence that the “stigma of failure" is much higher in Europe than in the US. 7 The evidence in previous studies on the impact of self-employment experience on wages is also hard to interpret because one cannot distinguish causality from correlation. The average worker who enters self-employment could differ from the average worker who never enters self-employment. For example, suppose workers who are willing to give self-employment a try are in someway better than the average worker. Because they are better workers, they have higher wages on average than workers who never are self- employed. This wage difference is not caused by their self-employment experience, but results from the correlation between worker quality and self-employment. Additionally, self-employed workers who eventually return to wage work will likely differ from those
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This note was uploaded on 11/06/2011 for the course PSCHOLOGY 201 taught by Professor Dr.mckenny during the Spring '08 term at Delta State.

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Do Employers value entrepreneurial human capital - Do...

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