Does education matter for the earnings of former entrepreneurs? Longitudinal evidence using entry and exit dynamics

Abstract

AbstractWage employment is the most commonly observed type of employment after a spell of entrepreneurship. The purpose of this paper is to investigate the effects of having been an entrepreneur on earnings after individuals exit. The question is how the entrepreneurship spell influences their value in the labor market? Based on a theoretical framework and earlier literature, our specific interest lies in how these outcomes interact with education level and the nature of the entrepreneurial venture. To investigate this question, we use longitudinal register data on firms and individuals in Sweden. The empirical strategy builds on matching techniques and estimations of earnings equations in a difference-in-differences framework with heterogenous treatment years. We provide evidence that there exists an earnings penalty when highly educated entrepreneurs return to wage employment. This effect is persistent throughout the time period that we observe. For individuals with lower educational attainment, we find no or weak evidence of a wage penalty. Our results suggest that the wage penalty for highly educated individuals operates through the depreciation of specific specialized skills valuable in wage employment.