On the Nature of Entrepreneurship

Anmol Bhandari; Tobey Kass; Thomas J. May; Ellen McGrattan; Evan Schulz

doi:10.3386/w32948

On the Nature of Entrepreneurship

Anmol Bhandari, Tobey Kass, Thomas J. May, Ellen McGrattan & Evan Schulz

Working Paper 32948

DOI 10.3386/w32948

Issue Date October 2024

Revision Date May 2025

This paper provides insights into the nature of entrepreneurship using a novel panel dataset based on U.S. administrative data from the Internal Revenue Service and the Social Security Administration. These data are used to analyze patterns of income growth and determinants of entrepreneurial choice for a large population of business owners. Earlier studies relying on household survey data have been limited by small samples, short panels, and income top-coding and, as a result, have focused on the typical self-employed individual rather than the typical dollar earned in self-employment. Without these limitations, we find that self-employed individuals have significantly higher average income and steeper income growth profiles than paid-employed peers with similar characteristics. Contrary to the survey evidence, we find a smaller role for non-pecuniary motives in driving entrepreneurial choice, little evidence for high risk factors or liquidity constraints impeding entry, and a positive role for past on-the-job experience to start a business. Across years, we find stable entry and exit rates into self-employment and no decline in the share of entrepreneurs in the population over our sample period, even during the Great Recession.

An interactive companion to the paper, including access to the data, is available at www.econ.umn.edu/∼erm/support/OTNOELive.html. The authors thank Anne Parker and Barry Johnson for facilitating this project through the Joint Statistical Research Program of the Statistics of Income Division of the United States Internal Revenue Service. We acknowledge support from the National Science Foundation (Award #2214248). For their valuable feedback on earlier drafts, we thank the editor, four referees, and seminar participants at the Office of Tax Analysis, Federal Reserves, Stanford, Harvard, Yale, Princeton, ASU, NYU, and Toronto and conference participants at NBER, SED, and Hoover Institution. This research was conducted while May and McGrattan were IRS employees without pay under an agreement made possible by the Intragovernmental Personnel Act of 1970 (5 U.S.C. 3371-3376) and Kass was an employee at the U.S. Department of the Treasury. Any findings, interpretations, opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views or political positions of the IRS or the U.S. Department of the Treasury, the NSF, or the National Bureau of Economic Research. All results have been reviewed to ensure that no confidential information is disclosed. All data work for this project involving confidential taxpayer information was done at IRS facilities, on IRS computers, by IRS and Department of the Treasury employees, and at no time was confidential taxpayer data ever outside of the IRS computing environment.
MARC RIS BibTeΧ
- October 11, 2024

On the Nature of Entrepreneurship

Non-Technical Summaries

Related

Topics

Programs

Working Groups

More from NBER