Francesca melillo

Abstract

While previous work recognizes that entrepreneurs incur a pay cut when they return to the wage sector, whether these initial wage losses are temporary or long-lasting remains an open question. Using matched employer-employee data from Belgium, a country characterized by relatively high labor market frictions, we document a remarkable persistence: former entrepreneurs earn substantially less than equivalent employees years after entrepreneurship, and there is little indication this gap closes over time. Fewer hours worked on the job explain about 60% of this difference, whereas the remaining 40% is due to a reduction in daily wage. We interpret the decline in working hours as the result of entrepreneurs’ preferences for flexibility. Whereas the daily wage loss reflects unfulfilled market expectations. Further empirical evidence corroborates both mechanisms.