The effect of education and experience on self-employment success

The impact of education on the business success of an entrepreneur has been the subject of much discussion and speculation in both the popular and academic press. The literature is full of folklore focusing on the high-school drop out who made it big in the business world armed with an education from the school of hard knocks. Until recently this was part of the myth surrounding entrepreneurship. The myth takes shape in three basic areas. The first looks at the entrepreneur's level of education relative to the general public. The second area addresses the effect of education on people becoming entrepreneurs on a macro level. Do people with higher levels of education start more businesses than people with less education, does it increase the probability of becoming an entrepreneur? The third area concerns the micro-economic effect on individual entrepreneurs. Does education help an entrepreneur succeed?Past research on education and entrepreneurship consists mostly of institutional studies at universities with established programs. These offer good support for the outcome of educational programs. However, these studies are poorly circulated and seldom published because of the limited sample sizes (McMullan (1988) summarized several such studies). In this study the literature is reviewed in three areas mentioned above and new information on the relationships between education, experience, and self-employment is provided.The empirical part of this study examines the effect of education and experience using U.S. census data. Self-employment is used as a surrogate for entrepreneurship and the analysis controlled for farmers and professionals (medical doctors, lawyers, accountants, etc.) so that it would more closely fit our conception of an entrepreneur. Earnings potential was used as a measure of success. We recognize that success is a subjective experience based on one's expectations and actual outcomes; however, we believe that earnings provided a global indicator of success that is quantifiable relative to the sample used. Four specific hypotheses were generated and tested using the data.The first hypothesis (Self-employed have more years of formal education than those who do not work for themselves.) was confirmed with the years of education for the self-employed being 14.57 years for all workers, 14.71 years for males, and 14.13 years for female workers. Wage and salaried workers came in nearly one full year lower with: 13.58 years for all worked, 13.73 for male workers, and 13.40 for female workers.Hypothesis two (The number of years of formal education will increase the probability of becoming self-employed.) was supported with the probability of becoming self employed increasing by 0.8% for each year of education providing a significant relationship (t = 32.11 for all workers, t = 21.95 for males, and t = 20.76 for females, p < .0001 for all three).Hypothesis three (The relationship between years of formal education and success of the self-employed, as well as the general population will be positive and significant.) was supported using the “Beta” coefficients in a “Probit” regression model, indicating that self-employment and wage and salaried earnings increase significantly for each year of education. Self-employment earnings increased $1207.63 a year for each year of education ($1212.76 for males and $414.81 for females). Wage and salaried workers earnings increased $825.99a year for each year of education ($1023.33 for males and $369.37 for females).Hypothesis four (The relationship between experience and self-employment success will be positive and significant, but weaker than the impact of education.) was supported. All self-employed workers, both male and female, had over two years more experience than their wage and salaried counterparts. There is a strong positive relationship between self-employment and both experience and earnings with the exception of self-employed females whose experience did not significantly impact their earnings.In conclusion, a general education has a strong positive influence on entrepreneurship in terms of becoming self-employed and success. Experience has a similar relationship although not as strong. Future studies need to examine the impact of specific types of education, such as business school or entrepreneurship classes, on the entrepreneurial outcomes in the studies.