Is Self-Employment Always a Bad Experience?

Abstract

We estimate the effects of past self-employment experience on subsequent earnings in wage work using the population of Danish citizens between 16 and 65 years of age that we observe between 1980 and 1996. Specifically, we analyze how the effects of previous self-employment experience are affected by age, success in self-employment and the employment status prior to self-employment. We also take a long-term perspective and test whether wage-effects of self-employment are nonlinear and if they depreciate over time. We find that an additional year of self-employment experience reduces subsequent wage earnings by 4.7%-8.2% compared to continued wage-work experience. Young and successful formerly self-employed benefit, however, from their self-employment experience. Moreover, formerly self-employed who were non-employed or unemployed prior to their self-employment experience receive only slightly lower wages than individuals that never entered self-employment. We also find that the negative self-employment effects decrease with longer spells of self-employment and that they depreciate over time in subsequent wage work.self-employment; entrepreneurship; wages; experience