Do Entrepreneurs Really Earn Less?

Abstract

Based on large representative German household survey data, we compare incomes of the self-employed with those of paid employees. We find that the entrepreneurial income gap is largest for those holding a tertiary degree, but in two directions: positive for employers (self-employed with further employees) and negative for solo entrepreneurs. Entrepreneurs holding a tertiary degree also face the greatest income variation. However, some solo self-employed earn more than their employed counterparts, in particular those with a university entrance degree as the highest level of education.