Necessity and Opportunity Entrepreneurs in Germany: Characteristics and Earnings Differentials

Our paper uses data from the German Socio Economic Panel Study (GSOEP) to analyze how necessity and opportunity entrepreneurs differ in kind and in earnings and what the determinants of the latter are. We estimate probit and random effects panel data models in order to address these questions. We find that the two types of entrepreneurs differ as concerns age, gender and other characteristics, but not with regard to education levels. Furthermore, opportunity entrepreneurs earn significantly more in our sample and the determinants of earnings levels differ to some degree. We conclude that our findings indicate a need to distinguish between the two groups in entrepreneurship policy-making. The results also show that commonly used specifications of earnings equations in labour economics seem to work better for opportunity than for necessity entrepreneurs.