To a certain extent, it is expected that individuals are attracted to business-ownership because of higher expected earnings relative to paid-employment; earnings in paid-employment can thus be viewed as an opportunity cost of entrepreneurship. Individuals with relatively low wages are the ones with higher likelihood of switching into self-employment (Evans and Leighton, 1989; Evans and Jovanovic, 1989; Blanchflower and Meyer, 1994). However there may be a mismatch between latent entrepreneurs’ expected utility from business-ownership and their effective earnings once they become business owners. Human capital may play an important role in addressing wage differentials between business-owners and paid employees (Becker, 1975). Recent research has been focusing on the effect of self-employment experience on future wages as paid employee (Williams, 2000; 2003).
Amaral, António Miguel; Baptista, Rui; Lima, Francisco; and Preto, Miguel
"IS THERE A LABOR MARKET ‘PENALTY’ TO ENTREPRENEURSHIP? THE EVOLUTION OF EARNINGS FOR BUSINESS-OWNERS WHO BECOME PAID EMPLOYEES (INTERACTIVE PAPER),"
Frontiers of Entrepreneurship Research: Vol. 27
, Article 10.
Available at: http://digitalknowledge.babson.edu/fer/vol27/iss4/10