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 popul ar 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 w ith an education from the school of hard knocks. Until recently this w as part of the myth surrounding entrepreneurship. The myth takes shape in three basic areas. The first looks al the entrepreneur's level of education relative to the general public. The second area addresses th e effect of education on people becoming entrepreneurs on a macro leve l. Do people with higher levels of education start more businesses tha n people with less education, does it increase the probability of beco ming an entrepreneur? The third area concerns the micro-economic effec t on individual entrepreneurs. Does education help an entrepreneur suc ceed? Past research on education and entrepreneurship consists mostly of institutional studies at universities with established programs. Th ese offer good support for the outcome of educational programs. Howeve r, these studies are poorly circulated and seldom published because of the limited sample sizes (McMullan (1988) summarized several such stu dies). In this study the literature is reviewed in three areas mention ed above and new information on the relationships between education, e xperience, and self-employment is provided. The empirical part of this study examines the effect of education and experience using U.S. cens us data. Self-employment is used as a surrogate for entrepreneurship a nd the analysis controlled for farmers and professionals (medical doct ors, lawyers, accountants, etc.) so that it would more closely fit our conception of an entrepreneur. Earnings potential was used as a measu re of success. We recognize that success is a subjective experience ba sed on one's expectations and actual outcomes; however, we believe tha t 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 mo re years of formal education than those who do not work for themselves .) was confirmed with the years of education for the self-employed bei ng 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 f ormal education will increase the probability of becoming self-employe d.) was supported with the probability of becoming self employed incre asing by 0.8% for each year of education providing a significant relat ionship (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 relation ship between years of formal education and success of the self-employe d, as well as the general population will be positive and significant. ) was supported using the ''Beta'' coefficients in a ''Probit'' regres sion model, indicating that self-employment and wage and salaried earn ings increase significantly for each year of education. Self-employmen t earnings increased $1207.63 a year for each year of education ($1212 .76 for males and $414.81 for females). Wage and salaried workers earn ings increased $825.99 a year for each year of education ($1023.33 for males and $369.37 for females). Hypothesis four (The relationship bet ween experience and self-employment success will be positive and signi ficant, but weaker than the impact of education.) was supported. All s elf-employed workers, both male and female, had over two years more ex perience 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 relat ionship although not as strong. Future studies need to examine the imp act of specific types of education, such as business school or entrepr eneurship classes, on the entrepreneurial outcomes in the studies.