Centre for Vocational Education Research LSE RSS Email Facebook Twitter


CEP discussion paper
Smart and Illicit: Who Becomes an Entrepreneur and Does it Pay?
Ross Levine and Yona Rubinstein
August 2013
Paper No' CEPDP1237:
Full Paper (pdf)

JEL Classification: L26;J24;J3;G32

Tags: self-employment; occupational choice; compensation; firm organization; corporate finance; cognitive and noncognitive traits

We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated - as teenagers - scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smarts” and “aggressive/illicit/risk-taking” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts.

Smart and Illicit: Who becomes an Entrepreneur and do they Earn More?, Ross Levine and Yona Rubinstein, The Quarterly Journal of Economics, Volume 132, Issue 2, May 2017