If You Are So Smart, Why Aren´t You An Entrepreneur? Returns To Cognitive And Social Ability: Entrepreneurs Versus Employees

How valuable are cognitive and social abilities for entrepreneurs' incomes as compared to employees? The authors answer three questions: To what extent does a composite measure of ability affect an entrepreneur's earnings relative to employees? Do different cognitive abilities (e.g. math ability, language ability) and social ability affect earnings of entrepreneurs and employees differently? And does the balance in these measured ability levels affect an individual's earnings? The individual fixed-effects estimates of the differential returns to ability for spells in entrepreneurship versus wage employment account for selectivity into entrepreneurial positions as determined by fixed individual characteristics. General ability has a stronger impact on entrepreneurial incomes than on wages.