Education and Entrepreneurship Selection and Performance: A Review of the Empirical Literature

Abstract

This paper provides a review of empirical studies into the impact of formal schooling on entrepreneurship selection and performance in industrial countries. We describe the main effects found in the literature, we explain the variance in results across almost a hundred studies, and we put the empirical results in the context of related economic theory and the much further developed literature in labor economics (studying the rate of return to education among wage employees). Five main conclusions result from this meta-analysis. First, the impact of education on selection into entrepreneurship is insignificant. Second, the effect of education on performance is positive and significant. Third, the return to a marginal year of schooling is 6.1% for an entrepreneur. Fourth, the effect of education on earnings is smaller for entrepreneurs than for employees in Europe, but larger in the USA. Fifth, the returns to schooling in entrepreneurship are higher in the USA than in Europe, higher for females than for males, and lower for non-whites or immigrants. In conclusion, we offer a number of suggestions to move the research frontier in this area of inquiry. The entrepreneurship literature on education can benefit from the technical sophistication used to estimate the returns to schooling for employees.

The returns to education for opportunity entrepreneurs, necessity entrepreneurs, and paid employees

“…Van Praag et al (2009), who take into 8 account the endogeneity of education (in contrast to the studies surveyed by Van der Sluis et al, 2008), confirm higher returns for entrepreneurs in the US. Parker and Van Praag (2006) estimate entrepreneurial returns in the Netherlands that exceed estimates for paid employees reported in Levin and Plug (1999), but they do not offer an own direct comparison.…”

“…In their literature review of the empirical evidence, Van der Sluis et al (2008) summarise that studies using US data tend to report returns to education that are higher for entrepreneurs than for employees, whereas in Europe the opposite is found, although studies were only available for the UK, Italy, and the Netherlands. Van Praag et al (2009), who take into 8 account the endogeneity of education (in contrast to the studies surveyed by Van der Sluis et al, 2008), confirm higher returns for entrepreneurs in the US.…”

What is the effect of university education on chances to be self-employed in transitional countries?: Instrumental variable analysis of cross-sectional sample of 29 nations

“…In addition, the problem of establishing the effect of education on the probability of being self-employed in transitional countries goes beyond the lack of reliable data, as isolating the effect of higher education on probability of self-employment is difficult given the strong endogeneity (Van der Sluis et al 2008). A few studies, which addressed endogeneity in the effect of education on probability of self-employment in developed countries, have confirmed the importance of the omitted variable problem (Block et al 2011(Block et al , 2012Parker and Van Praag 2006, Parker and van Praag 2010.…”

“…Although there are a few studies, which focused on the determinants of entrepreneurial choice in transitional countries, the direct effect of high education on selfemployment is under researched (van der Zwan et al 2013). The one reason is the lack of reliable high-quality data that would allow studying the effects of education on selfemployment on a diverse sample of transitional countries (Nikolova et al 2012).…”

“…To study the effect of education is important since it can directly be manipulated and influenced by policy measures (Heyneman 2010;van der Zwan et al 2013). In general, human capital theory postulates the positive return of higher level of education for wage earners and self-employed, although no such theory has yet been developed for the effects of education on the choice of self-employment (Block et al 2011).…”