Income Penalties Associated with Entrepreneurs’ Exit from Self-Employment

Par Lars Kolvereid, Thor-Erik Sandberg Hanssen

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

  • Income
  • Income Penalty
  • Self-employment
  • Former Self-employment
  • Novice Entrepreneurs
  • Norway
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