New research (by Joop Hartog, Mirjam van Praag, and Justin van der Sluis of the University of Amsterdam) seems to show that there is a less than optimal number of entrepreneurs. Here's analysis by Portfolio.com's Zubin Jelveh:
But while earnings for skilled entrepreneurs are indeed higher, merely possessing greater general abilities doesn't drive people into entrepreneurship. Using a survey which regularly tracked 4,500 teenagers and young adults through part of their adult lives from 1979 to 2000, the researchers found that a person with higher general abilities was no more likely to choose to start his/her own business than someone with lower general abilities.
Possible explanations? (Jelveh offers the first two, I add two more)
- Risk aversion is uncorrelated with skill.
- Potential entreps are ignorant of the opportunity.
- Barriers to riches are real, especially non-financial regulatory burdens, making entrep effort less rewarding.
- Opportunity costs are exponentially higher for skilled salaried workers.
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