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Title: Economic Returns to Education for Entrepreneurs: The Development of a Neglected Child in the Family of Economics of Education?
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van der Sluis, Justin van Praag, C. Mirjam |
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Economic Returns to Education for Entrepreneurs: The Development of a Neglected Child in the Family of Economics of Education? Swedish Economic Policy Review 11,2 (2004): 183-226. Also: http://www.sweden.gov.se/content/1/c6/09/52/74/1c811916.pdf Cohort(s): NLS General, NLSY79 Publisher: Swedish Economic Policy Review Keyword(s): Educational Returns; Entrepreneurship; Human Capital; Locus of Control (see Rotter Scale); Rotter Scale (see Locus of Control); Self-Employed Workers; Variables, Instrumental Permission to reprint the abstract has not been received from the publisher. Entrepreneurship is becoming an increasingly prominent issue in both academic and policy circles. Entrepreneurs are often credited with innovating new products, discovering new markets, and displacing ageing incumbents in a process of "creative destruction". But it is also recognized that if entrepreneurs face constraints such as limited human capital, then these economic benefits might not be realized. This realization has prompted several governments to devise public programs to encourage entrepreneurship. Underlying most of these programs is a belief that human capital affects entrepreneurs' performance in practice. The measurement of the (determinants of the) return to entrepreneurial (human) capital is thus relevant for devising (government and lenders') programs to realize the optimal economic benefits from entrepreneurship. These are often larger than the private benefits accruing to entrepreneurs. However, as we demonstrate in this paper, the effect of formal schooling, one of the most prominent manifestations of human capital, on entrepreneur performance has not yet been consistently measured, due to shortcomings in the empirical strategies applied so far. We discuss these shortcomings as well as some potential solutions that we borrow from the technically more sophisticated literature on the returns to education for employees. Then, we will discuss two recent applications of such more advanced empirical strategies to consistently estimate the causal and distinct effect of formal education on entrepreneurial income. The first study, by Van der Sluis, Van Praag and Van Witteloostuijn (2004) (VVW hereafter) pertains to the US. It compares the rate of return to education for entrepreneurs to the rate of return for employees. The second study, by Parker and Van Praag (2004) (PvP hereafter) pertains to Europe (The Netherlands). It isolates the causal effect of education from the inter-related effect of capital constraints on the entrepreneur's perf ormance. The final sections of this paper will discuss the results from those recent studies, and provide conclusions and policy implications. |
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Bibliography Citation
van der Sluis, Justin and C. Mirjam van Praag. "Economic Returns to Education for Entrepreneurs: The Development of a Neglected Child in the Family of Economics of Education?" Swedish Economic Policy Review 11,2 (2004): 183-226.
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