Regional differences in returns to education for entrepreneurs versus wage earners

Abstract

Many studies suggest that rates of return to schooling are lower for entrepreneurs than for employees, although the opposite has also been reported. This paper analyses the returns to education for entrepreneurs in urban and rural regions in Finland and compares these to the returns for wage earners. These areas show different rates of self-employment, higher rates being found in rural areas and lower rates in urban areas. The analysis is based on a rich, register-based dataset that includes a 7% random sample of all Finns. To avoid potential sources of bias, Mincer-type income equations are estimated using different estimation procedures. The results show regional variation in returns to education. In rural areas, returns to education are somewhat higher for entrepreneurs than for wage earners. Highly educated entrepreneurs especially gain advantage from their education. In urban areas as well as in the entire country, the returns for the two occupation groups are rather similar.