On the Nature of Entrepreneurship

Abstract

This paper examines the nature of entrepreneurship using a novel panel dataset based on US Internal Revenue Service data. We analyze income growth trajectories and the determinants of entrepreneurial choice for business owners. Compared with prior household survey–based studies, we find that self-employed individuals have significantly higher average incomes and steeper income growth than their wage-earning matched peers. Contrary to survey evidence, we find a limited role for nonpecuniary motives, uninsurable risk, and liquidity constraints driving entrepreneurial choice. Prior work experience predicts entrepreneurial entry. Entry and exit rates into self-employment remain stable over time, including during the Great Recession.