It's about time: The timing of entrepreneurial experience and the career dynamics of university graduates

Abstract

The labor market value of former entrepreneurs remains unclear, with both theory and empirical evidence offering mixed conclusions. We suggest that the timing of entrepreneurial experience matters and helps unravel this puzzle. Using Danish employer-employee data on a large sample of university graduates, we show that the option value of testing an entrepreneurial opportunity and then returning to paid employment decreases over an individual's career. We follow individuals for fifteen years and compare the labor market outcomes of never, early, and late entrepreneurs based on the timing and type of entrepreneurial experience in their careers. Compared to those who have never been entrepreneurs, early entrepreneurs earn higher wages, while late entrepreneurs experience a significant wage penalty in the long run. Both the timing and the type of entrepreneurial experience shape individuals’ subsequent career trajectories and employers’ uncertainty about their value, which partly explain long-term wage differentials.