Income Penalties Associated with Entrepreneurs’ Exit from Self-Employment

Lars Kolvereid and Thor-Erik Sandberg Hanssen

Journal of Innovation Economics, 2021, vol. n° 35, issue 2, 131-149

Abstract: This study investigates income among salaried employees who were self-employed between 2005 and 2015 and returned to salaried employment in 2016. We argue that salaried employees who experiment with self-employment are likely to suffer a short-term income penalty when they return to wage employment. The hypotheses are tested in a large sample of Norwegian full-time employed non-entrepreneurs who became self-employed between 2005 and 2015 and returned to paid employment in 2016. The findings indicate that the relationship between the number of years as self-employed and income is U-shaped. The findings also show that the income penalty associated with former self-employment can be reduced by returning to the initial employer and by taking advantage of industry experience obtained from business ownership when choosing employer. JEL Codes: J01, J30, J31

Keywords: Income; Income Penalty; Self-employment; Former Self-employment; Novice Entrepreneurs; Norway (search for similar items in EconPapers)
JEL-codes: J01 J30 J31 (search for similar items in EconPapers)
Date: 2021
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