The relationship between entrepreneurship and education is U-shaped, i.e. people with low or high levels of
education are more likely to be entrepreneurs than people with intermediate levels of education.
Whereas there is an abundant literature on the impact of an additional year of schooling on wages or salaries of
employees, the relationship between entrepreneurship and schooling has received much less attention, and much less
sophisticated econometric treatment. Therefore, in this section, I simply focus on results in the literature on the proportion
of entrepreneurs by educational attainment. In Section 5, I supplement this with further, new evidence from the NLSY79.
In that section, I also go beyond the focus on schooling in much of the entrepreneurship literature and consider another,
potentially more informative proxy for ability: wages in previous employment. Results from the NLSY79 are generally in
line with the ones from other countries and data sources reported in this section.
Before proceeding to the results, note that studies that look only for a linear effect, e.g. by regressing the probability of
being an entrepreneur on years of schooling, often remain inconclusive. The reason for this is that on closer inspection, as
shown below, a U-shape appears: people at the extremes of the education distribution are more likely to be entrepreneurs
than people with intermediate levels of education. Looking for a purely linear relationship will hide the U-shape and most
likely yield insignificant estimates.
Table 1 summarizes evidence from some recent and some influential papers, and also gives a preview of results in
Section 5 of this paper. Note that while the papers cited in the table define entrepreneurs or the self-employed in slightly
different ways, their results are comparable because all definitions have one key element in common: entrepreneurs are
residual claimants. (See the note to the table for details on definitions.) Moreover, in all sources the self-employed can
have employees. Since the term ‘‘self-employed’’ does not convey this well, I refer to them as entrepreneurs throughout
the paper.
The table shows entrepreneurship rates by educational category from a variety of sources, covering different countries
and time periods. The columns refer to less than high school (oHS), high school (HS), less than college (oC), college (C),
Master’s degree (M), and professional degrees (essentially MD and LLD) or PhD (P/PhD). Not all sources report data for all
of the educational categories.
The most remarkable feature of the data reported in Table 1 is that entrepreneurship rates are higher for the lowest and
highest levels of schooling, and lower for intermediate levels. Hence, the relationship between the entrepreneurship rate
and educational attainment is U-shaped. This holds across data sources, time periods, and (some) countries, giving the
regularity some support. Using recent data from the new Panel Study of Entrepreneurial Dynamics (PSED), Campbell and
De Nardi (2009) also find a U-shape of the probability of being in the process of starting a business with respect to
schooling (see their Fig. 2).
Table 1