Entrepreneurs, Jacks of all trades or Hobos?
Astebro, T., Thompson, P. (2011). Research Policy, 40 (5), 637-649
Topics: Entrepreneurship, Skills
Should entrepreneurs be specialists or generalists? The authors examine the relationship between varied employment before becoming an entrepreneur and income.
Key takeaway: The number of different professions or industries worked in is associated with lower household income for both entrepreneurs and employed workers.
Research suggests that “entrepreneurs should be generalists”, while employed workers should be specialists and that engaging in a diverse employment prior to becoming an entrepreneur is associated with higher income. An alternative theory predicts that a taste for diversity drives the choice of entrepreneurship and that varied employment is associated with lower earnings.
The authors study these alternative theories using “data from a survey of 830 independent inventors” matched with a sample of 300 individuals from the general population. The methodology consists in probit regressions where the dependent variables include a binary variable for self-employment (or owning a business), and the independent variable is a measure of variety in employment. They then test the returns to variety by running interval regressions of household income on the number of occupational fields and the number of industries.
The results show that “inventor-entrepreneurs typically have a more varied labour market experience”, and that both the” number of different professions and the number of industries worked in”, is associated with lower household income for both entrepreneurs and employed workers, and” the effect was especially strong for entrepreneurs”.
One of the limitations of the article is the use of proxy measures for earnings, job market choices and taste for variety which may leave results open to different interpretations. Another problem concerns missing item data on earnings, due to which, the findings have to be tempered.
The results thus suggest moderation when policy makers encourage people to train broadly in order to succeed as an entrepreneur.