Comparing the Returns to Education for Entrepreneurs and Employees

Abstract

The returns to education (RTE) for entrepreneurs, unlike for employees, have not yet been estimated by methods coping with the potential endogeneity problem. We estimate the RTE for entrepreneurs and employees while testing for and coping with this problem. Our results derived from a large US sample strongly indicate that OLS renders downward biased RTE's for entrepreneurs and employees. The bias is larger for entrepreneurs. This leads to an interesting and policy relevant result: The RTE are higher for entrepreneurs than for employees (14% and 10%, respectively), whereas previous estimates suggested similar RTE's. Tests indicate that this result is robust.Entrepreneurship; self-employment; education; returns to education