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CEP discussion paper

Smart and Illicit: Who Becomes an Entrepreneur and Does it Pay?


We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated - as teenagers - scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smarts” and “aggressive/illicit/risk-taking” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts.


Ross Levine and Yona Rubinstein

28 August 2013     Paper Number CEPDP1237

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This CEP discussion paper is published under the centre's Growth programme.