What distinguishes entrepreneurs? Evidence on the motives for self-employment

Previous studies distinguish between “survival” and “aspirations” based on ex ante declarations. In this paper, we propose an identification strategy based on objective criteria. Using evidence from a standard labour force survey, we find that self-employed who switched from wage employment and created additional jobs were systematically over-compensated relative to those who did not switch and to those who switched but have not created additional jobs.

► We analyse switching from employment to self-employment. ► Fitted wages and residuals are used to infer the “productivity” and overcompensations. ► Residuals for the switchers do not differ statistically from non-switchers. ► Switchers, who create new jobs have lower fitted wages but positive residuals. ► Such results suggest overcompensation in the case of switchers who create jobs.