DP12312 | Are They All Like Bill, Mark, and Steve? The Education Premium for Entrepreneurs

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We rely on the Survey of Consumer Finances to study the return to education of US entrepreneurs since the late 1980s. We calculate the average yearly income that an entrepreneur expects to obtain during his venture, combining labor income, dividend payments, and capital gains upon selling the business. We find that the premium for postgraduate education has increased substantially more for entrepreneurs than for employees. Today an entrepreneur with a postgraduate degree earns on average \$100,000 a year more than one with a college degree. And the difference is substantially greater at the higher quantiles of the income distribution. In the late 1980s, the differences had been close to zero. The rise in the postgraduate premium is mainly due to increased complementarity between the advanced formal skills provided by higher education and the applied practical expertise acquired through past labor market experience. In combination, these two factors have become increasingly valuable to running successful businesses.