Returns to education and experience in self-employment: Evidence from Germany

This paper compares the returns to human capital in the self-employed and wage-employed sectors of the economy. Using data from the former West German sample of the German Socioeconomic Panel survey for the 1984-1997 time period, we estimate returns to education and work experience from standard log-earnings equations for self-employed and wage-employed workers. Two key results are found. First, additional schooling has a smaller effect on earnings for the self-employed than for the wage-employed. Indeed, educational attainment has an insignificant effect on self-employment earnings. Second, prior self-employment experience receives a lower return in wage-employment than does prior wage-employment experience. These results are consistent across specifications controlling for education endogeneity and self-selection bias.