JENA ECONOMIC
R
ESEARCH PAPERS
# 2009 – 045
Who values the status of the entrepreneur?
by
Mirjam van Praag
www.jenecon.de
ISSN 1864-7057
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Who values the status of the entrepreneur?
May 2009
Mirjam van Praag
University of Amsterdam
Abstract
Parker and Van Praag (2009) showed, based on theory, that the group status of
the profession ‘entrepreneurship’ shapes people’s occupational preferences and
thus their choice behavior. The current study focuses on the determinants and
consequences of the group status of a profession, entrepreneurship in particular. If
the group status of entrepreneurship is related to individual choice behavior, it is
policy relevant to better understand this relationship and the determinants of the
status of the entrepreneur. For reasons outlined in the introduction, this study
focuses on (800) students in the Netherlands.
We find that the status of occupations is mostly determined by the required level of
education, the income level to be expected and respect. Furthermore, our results
imply that entrepreneurship is associated with hard work, high incomes, but little
power and education. Moreover, we find evidence that individual characteristics,
such as entrepreneurship experience, vary systematically with the perceived
status of occupations, thereby contributing ammunition to a fundamental
discussion in the literature. Finally, we find a strong association between the
perceived status of the entrepreneur and the estimated likelihood and willingness
to become an entrepreneur.
JEL-classification: J22, J24, L26, M13, M59
Keywords: Entrepreneurship, self-employment, occupational
choice, occupational status, group status, peer group
effects
Acknowledgement: The author is grateful to Thomas Hemels and Taco
Slagter for their excellent research assistance and to
Oliver Falck for his valuable comments on an earlier
version of this chapter.
Contact: Mirjam van Praag, Amsterdam Center for
Entrepreneurship, Faculty of Economics and Business,
University of Amsterdam, Roetersstraat 11, 1018WB
Amsterdam, The Netherlands. C.M.vanPraag@uva.nl.
Jena Economic Research Papers 2009 - 045
1. Introduction
Recent research has revealed the relevance of (inter)personal factors for developing preferences for
occupational choice. For instance, the empirical studies by Falck et al. (2008) and Nanda and
Sørensen (2008) address identity and peer group effects as determinants of the choice for
entrepreneurship, respectively. Parker and Van Praag (2009) showed, based on theory, that the group
status of the profession ‘entrepreneurship’ shapes people’s occupational preferences and thus their
choice behavior. Moreover, the fact that the group status of entrepreneurship enters individuals’
utility functions, leads to a spillover effect: While people base their occupational decisions on their
own relative utility from entrepreneurship versus employment, their decisions may affect, at the same
time, the group composition and thereby the group status of the profession.
This chapter addresses the following explorative questions empirically: Does perceived
occupational status affect occupational choice or preferences, and more in particular, the choice and
preferences for entrepreneurship? What are the determinants of occupational status? Which (job)
characteristics affect status? And what individual characteristics determine an individual’s view on the
status of the entrepreneurial profession? Are the individual determinants of their perceived status of
the entrepreneurial profession related to the determinants of the choice and preferences for
entrepreneurship? We answer these questions based on an analysis of data gathered through
questionnaires among a (valid) sample of 800 Dutch students.
Answering these questions is instructive; if it is indeed the case that individual choices for
entrepreneurship are affected by perceived status, one can affect choices by changing status. More in
particular, the study of the occupational or personal determinants of status may reveal where to start
changing status and preferences (also given the spillover effects as discussed by Parker and Van
Praag, 2009 and the peer group effects discussed by Nandra and Sorensen, 2008).
The motivation for the focus on students is based on recent studies that collectively have
demonstrated (1) that the preference for entrepreneurship is not high among more highly educated
individuals (Van Der Sluis et al., 2008) whereas (2) the relative private returns to education are higher
for entrepreneurs than for employees (Van Der Sluis et al. (2004), Van Der Sluis et al., 2007), Van
Der Sluis and Van Praag, 2007), apparently also in the Netherlands (Parker and Van Praag, 2006) and
(3) the economic benefits from entrepreneurship are large (Versloot and Van Praag, 2007; Parker,
2004), but a large fraction of the total contribution is derived from a small fraction of the population
of entrepreneurs (Parker, 2009; Henrekson and Johanson, 2008), and finally (4) people who tend to
generate high incomes as entrepreneurs are also –on average- the ones that are able to have their
firms grow (Van Der Sluis et al., 2008). Hence, since these performance measures (income and
growth) are correlated positively, one can quite safely assume that higher education levels do not only
lead to higher incomes but also to higher growth and the creation of economic benefits. Therefore,
from a policy perspective, it is important to find instruments to motivate this group to become
entrepreneurs, and one such instrument might be status. This may be of particular relevance in
European countries such as the Netherlands: The evidence shows that the desirability of becoming
an entrepreneur is lower in Europe than in the US, especially among people with higher levels of
education (CBS, 2008, 2007). This motivates the choice for sampling Dutch students.
This chapter is organized as follows. Section 2 will introduce the theoretical notion of (group)
status. In particular we shall develop this notion in relationship to professions and entrepreneurship.
Needless to say this introduction is partly based on studies outside the field of economics and
business. Section 3 will discuss the dataset, variables and empirical methodology. Section 4 discusses
the results, whereas Section 5 concludes.
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2. Professional status: the development of a concept
A little history of the concept ‘status’ and its determinants
Max Weber (1864-1920) introduced the term ‘status’ as part of his three component theory of
stratification (social class, social status and religion). He defined status as “An effective claim for social
esteem”. He defined occupations as status groups, i.e. a group of persons who successfully claimed a
specific social esteem within a larger group.
Max Weber had also explicit ideas about the determinants of where to rank a profession
according to status, i.e. the determinants of status. He argued that occupational status depends, above
all, on the amount of training required and the opportunities for earnings (Weber, 1978 [1922],
p.144). Individual factors, however, would play no role: The status of occupations is uniform and set
(Balkwell et al., 1982). Weiss and Fershtman (1998) show that, consistent with the early Weber,
people who rank occupations according to status, do so, irrespective of their own individual
attributes, such as education, age, income or their country of residence. Furthermore, status rankings
of occupations correlate strongly across countries and persist over time (Treiman, 1977). Any
variance in the subjective evaluations of occupational status of different occupations is best explained
by observable characteristics of the occupations themselves, specifically by the mean income and
education in each occupation (Fershtman and Weiss, 1993, p. 948).
Brown (1955) identifies eleven possible occupation-related determinants of occupational
status, based on North-Hatt (1947): i) necessity to the public welfare, ii) respect, iii) cleanness of the
job, iv) education or training needed, v) talent or skills needed, vi) income, vii) leisure time/vacations,
viii) personal reverences (“Do you know people that perform the occupation, and is that a positive
association?”), ix) rich history, x) hard work needed and xi) the social or altruistic level of the job.
Villemez (1974) adds ‘power’ as the twelfth occupation related determinant.
However, other studies have shown that, in addition to job characteristics, individual
characteristics do determine the perceived status of occupations (Hendrickx et al., 1998; Katz, 1992).
How the ranked status of entrepreneurship is affected by professional and individual characteristics is
a matter of empirical study that has not yet been performed.
Status of professions in economics
Only recently have economists also become interested in concepts such as social status due to the
recognition that economic theory fails to explain a number of socio-economic phenomena by
ignoring possible interdependencies of preferences across people (Bisin and Verdier, 1998). The
social status of a profession is possibly affected by other peoples’ preferences or behavior (Parker
and Van Praag, 2009). In turn, status itself may affect peoples’ preferences.
Frank (1984, 1988) was one of the earliest economists recognizing the importance of status.
Frank (1984) claimed that a person’s status among his peers is no less important than his absolute
income level in determining his sense of wellbeing.
For not too long has status been incorporated in models as a determinant of individual utility
(and thus of behavior), see for instance, Fershtman and Weiss, 1993; Weiss and Fershtman, 1998;
Ederer and Patacconi, 2007; Clark et al, 2007; Kwon and Milgrom, 2007; Grund and Sliwka, 2007
and Parker and Van Praag, 2009.
How to measure the status of a profession
There are traditionally two ways of measuring status. The first is based on the occupational prestige
study by North and Hatt (1947). Their study, performed at the National Opinion Research Centre
and known as the NORC study, analyzed public attitudes regarding the prestige of 90 selected
occupations. The 1989 NORC general social survey includes an evaluation of the status of
occupations (Hodge, Siegel and Rossi, 1964). Respondents rank occupations according to their social
standing. We call this subjective status measurement.
This original NORC study was extended by Duncan (1961) who developed an objective
rather than a subjective measure of occupational status, the so called socioeconomic index (SEI).
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This was accomplished by linking the prestige scores from the NORC study to the income and
education information in the census, thus producing a formula to calculate and predict prestige solely
based on education and income for all occupations (Nakao and Treas, 1994; Hodge, 1981), leading to
the 1989 Total based SEI index.
Consistent with Weber (and Weiss and Fershtman, 1998), the status of a profession is
operationalized, in most economics studies, by the mean income in the profession (Ederer and
Patacconi, 2007, Kwon and Milgrom, 2007, Parker and Van Praag, 2009).
Status and entrepreneurship
Status and entrepreneurship has been little studied so far. Besides the theoretical study by Parker and
Van Praag (2009), we know only one empirical study addressing part of the central questions of this
chapter. Malach-Pines et al., (2005) show that the perception of high-tech entrepreneurs as cultural
heroes, i.e. as having a high social status, amongst MBA students in a particular country is correlated
with the level of entrepreneurial activity in that country as well as with the average risk taking
propensity and willingness to engage in entrepreneurial activity of the sampled MBA students in a
country. The sample includes three countries: The United States, Hungary and Israel.
Positioning of this study
In this empirical application the status of the profession ‘entrepreneurship’ is studied as well as its
determinants and the association between an individual’s status rank and her willingness and plans to
become an entrepreneur. In terms of the determinants of status, both characteristics of the
profession and of the individual may determine a person’s rank of the entrepreneur among other
professions. The possible profession related determinants presented to the respondents are based on
Brown (1955) (except iii, viii and xi) and Villemez (1974). The possible individual determinants of
status rank that we analyze source from the entrepreneurship literature. In terms of the measurement
of status, we conform to the method of the original (1989) NORC study. Thus, respondents simply
state their perceived status of the entrepreneur and of 19 other occupations. Hence, we will test
empirically which are determinants of the perceived status of the occupation ‘entrepreneur’ relative
to nineteen other professions that are in the choice set of students.
The current study differs from that of Malach-Pines et al. (2005) in several ways: The
analysis is not limited to high tech entrepreneurs
1
; the unit of analysis is the individual student, not
the country as in Malach-Pines et al.,; and, unlike Malach-Pines et al., we analyze the determinants of
entrepreneurial status, which might be a relevant instrument for conceiving policy measures to
stimulate entrepreneurship, if we find evidence that status and entrepreneurial activity are indeed
positively related. In the next section, we discuss the data and the methodology used.
1
Also the wording ‘high-tech’ in the specification by Malach Pines et al. (2005) might induce individuals to rate
the entrepreneur as having higher social status.
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