Research profile: Entrepreneurship does pay
Professor Chloe Tergiman is proving the value of entrepreneurship.
Why would anyone choose to become an entrepreneur when most salaried employees make more money than most entrepreneurs? This question has plagued economists since the release of an article in 2000, by B.H. Hamilton, titled “Does entrepreneurship pay? An empirical analysis of the returns to self-employment”. His study indicated that the median wage of entrepreneurs is significantly less than that of wageworkers and that the gap in earnings between the two groups continues to widen as time passes.
This gap would lead most people to believe that being an entrepreneur is not a lucrative career path so theories have developed in regards to what motivates a person to become an entrepreneur. Over the years it has been assumed that members of this group possess unique personality traits including excessive optimism, risk taking, and an inability to hold down a job thus accounting for why they choose work that is less lucrative.
Hamilton’s study seemed to support the trait-based theories as his findings suggested that overall earnings were lower for entrepreneurs. Assistant Professor Chloe Tergiman was not so sure about his findings, however, or the popular belief the specific personality traits could explain why certain individuals choose self-employment. Given the significant numbers of individuals who choose to become entrepreneurs, she was not convinced that Hamilton’s study provided a complete picture of the state of entrepreneurialism at that time.
Professor Tergiman noted that Hamilton focused on a segment of the population with 10 to 35 years of work experience and she wondered if the results were applicable for all experience levels. She surmised that to validly measure income differences between working groups, data needed to be gathered during the entire working life of an individual, not just a 25-year span in the middle, as had been done in the Hamilton study. She hypothesized that at the tails (the beginning and end) of an individual’s career, the relationship between salaried versus entrepreneurial work might be reversed.
To test her theory, Professor Tergiman looked at data on individual earnings of entrepreneurs and wageworkers over their entire working lives. She discovered that mid-career entrepreneurs did make less overall but they made more at the tails; a finding that could not be explained by current theorists. Her results suggest that entrepreneurs do place a high value on financial benefit but that benefit is realized at different times in their working life as compared to non self-employed workers.
Professor Tergiman’s findings have encouraged some economists to reevaluate what they have traditionally believed in regards to an entrepreneur’s personality traits and motivations. Her research could lead to new labour market policy regarding how best to support new ventures and the people who start them.
View Chloe Tergiman's profile to learn more about her research.