Hamilton, B.H. (2000). Does Entrepreneurship Pay? An Empirical Analysis of Self-employment. The Journal of Political Economy, 108(3), 604-631.
Using the 1984 panel of the Survey of Income and Program Participation and models of other researchers and theorists, Hamilton (2000) explained the differences that are pertinent between entrepreneurs’ earnings and the earnings of paid employees. Self-employment is considered as a good example of entrepreneurship which offers non-pecuniary (non-monetary) benefits to the entrepreneur. Hamilton (2000) suggests that these non-pecuniary benefits which accrue to employees include being one’s own boss. Non-pecuniary benefits are the motivating factors because this paper has found out that entrepreneurs receive lower earnings than employees who have similar characteristics as them. This is more so in the initial stages of the entrepreneurial venture.
The empirical analysis of self-employment also established that a median entrepreneur who has been in operation for over 25 years has a present value that is 25% less than the sent value of an employed person who has stayed in job for the same period of time. An entry wage for zero job tenure is also found out to be more than a median self-employment wage. The analysis also contends that entrepreneurs are less likely to take insurance covers (Hamilton, 2000). As a result, entrepreneurs tend to attract the least compensation across sectors. On the contrary, employees have insurance covers paid by their employers. This research also supports Superstar model which suggests that small skill differentials may be magnified to result in substantial differences in earnings, especially in labor markets where there is imperfect substitution among sellers. In conclusion, Hamilton (2000) proposes that the differentials in the earnings of self-employed persons indicate the willingness of entrepreneurs to forego substantial earnings for the sake of non-pecuniary earnings.
