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Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?

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Listed:
  • 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.

Suggested Citation

  • Ross Levine & Yona Rubinstein, 2013. "Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?," NBER Working Papers 19276, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19276
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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