NCPA - National Center for Policy Analysis

Lessons From Entrepreneurship

May 22, 2000

A new study shows that if low-wage earners leave their jobs to start their own businesses, and if they stick with that business for five years or longer, they come out considerably ahead of their wage-earning peers.

The study conducted by Douglas Holtz-Eakin of Syracuse University, Harvey S. Rosen of Princeton University and Robert Weathers of the Social Security Administration analyzed the economic progress of a cross-section of American workers from 1969 to 1990.

  • The study found that on average, those who try self-employment for a year or two suffer a big initial hit in income -- but tend to catch up with their wage-earning peers several years after they return to ordinary jobs.
  • Those who stick with their enterprises five years or longer, and who earned relatively high wages in their former jobs, actually fell a bit behind their counterparts after five years.
  • But those who had been average earners come out slightly ahead of their peers, while those who previously earned low wages and pursued their enterprise for five or more years did considerably better.

Source: Douglas Holtz-Eakin, Harvey S. Rosen, Robert Weathers , "Horatio Alger Meets the Mobility Tables," NBER Working Paper No. W7619, March 2000, National Bureau of Economic Research; Gene Koretz, "Learning from Horatio Alger," Business Week, May 22, 2000.

For NBER abstract:


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