Entrepreneurs and Public-Sector
Employees: The Role of Achievement
Motivation and Risk in Occupational
Choice
Irvin B. Tucker
Theodore W. Schultz (1980, pp. 437-39) stated: "In large measure, economic theory either omits the entrepreneur or it burdens him with esoteric
niceties the implications of which are rarely observable . . . entrepreneurial
ability continues to be an elusive concept in economics. The dialogue between theory and observable entrepreneurial behavior is not one of the
more cogent and useful parts of economics." Perhaps these observations
partially explain and justify the renewed interest in the concept and importance of entrepreneurship to the American economy. Moreover, it is surprising that a review of the definitions of an entrepreneur in the literature
reveals some noteworthy differences. For example, a typical description of
this factor of production was presented in a recent article by Calvin A. Kent
(1985). Kent defined the entrepreneur's role in the economy as job generation and innovation. In short, he expressed the view that entrepreneurs are a
"breed apart" because these individuals possess two characteristics that are
unique—risk taking and achievement motivation. Kent asserted that the entrepreneur's principal motives are the thrill of creation and the desire to be
independent. Thus, if offered a higher income if they would work for someone else, most entrepreneurs, ceteris paribus, would be expected to refuse to
become an employee.
The characteristics of entrepreneurship are particularly important to the
field of economic education because student learning objectives and teaching activities for this concept are receiving special national emphasis. Although the definition expressed by Kent may be predominate, interesting
variations exist among economists. Frank H. Knight (1921, pp. 269-70) interpreted the entrepreneur as one who contributes (a) managerial or organizational skills and (b) assumes risk by guaranteeing the "doubtful and
timid" a specified income in return for profit. Joseph A. Schumpeter (1939,
pp. 103-6) viewed the entrepreneur as a leader who implements innovation
into the economic process. In Schumpeter's words:
irvin B. Tucker lit is an associate professor of economics and director of the Center for
Economic Education at the University of North Carolina at Charlotte. This work was supported in part by funds from the Foundation of the University of North Carolina at Charlotte
and from Ihe Stale of North Carolina.
Summer 1988
^^
. . . the entrepreneur may, but need not, be the inventor of the good or processes he introduces. Also, the entrepreneur may, but need not, be the person
who furnishes the capital. This is a very important point. . . . It is leadership
rather than ownership that matters . . . risk bearing is no part of the entrepreneurial function.
More recent examples of the treatment of the functions of the entrepreneur
in principles textbooks include the following:
This is the person (entrepreneur) who comes up with the ideas and takes the
risks that are necessary to start a successful business. The founders of electric
utility companies were entrepreneurs, while those currently running them are
more accurately called managers. (Waud 1983, p. 6)
Entrepreneurship is the process of looking for new possibilities, making use of
new ways of doing things, being alert to new opportunities, and overcoming old
limits. It is a dynamic process that breaks out of the static constraints set by efficiency. . . . The manager of a Ford plant may be less of an entrepreneur than
the founder, but the manager's work is not entirely routine. Unexpected problems arise that must be solved somehow—often by figuring out a new way of
doing things. (Dolan 1986, pp. 34-35)
Although these definitions for entrepreneurship differ, each considers
two testable attributes: first, the entrepreneur is an individual who is unusually motivated to succeed; second, an entrepreneur is a risk taker. It is important to note that the literature agrees with the first distinction, but the
second proposition is less certain. As shown above, according to both Kent
and Knight, the entrepreneur is a risk taker. Schumpeter, however, rejected
this idea. Waud seems to confine the link between risk and entrepreneurs to
starting a new business. Dolan, on the other hand, appears to follow
Schumpeter by focusing on the role of entrepreneurship in the dynamic economic process. Dolan's definition of entrepreneurship is also more comprehensive than Waud's because it does not restrict economic behavior to starting a new business but instead includes decisions that are not routine in
nature.
The interdisciplinary literature provides additional insight into the relationship between an entrepreneur's personality traits and the profit motive.
Based on several tests of the relationship between achievement levels and
risk drawn from international samples of entrepreneurs, David C. McClelland (1971, p. 115) summarized his conclusions as follows:
They (entrepreneurs) seek out and work harder at tasks that involve a real challenge, that is, a moderate degree of risk. On the other hand, they avoid gambling situations because even if they win, they get no sense of personal achievement since winning is the result of luck, not skill. They prefer to take personal
responsibility for their decisions and they want the outcome to depend on their
own skill or ability.
McClelland (p. 166) posited the role of profits in the following statement:
. . . the entrepreneur also likes a job that gives him accurate knowledge of the
results of his decisions. Growth in sales, output, or profit margins ordinarily
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tells him whether he has made a correct choice or not. It is iti this sense that profit
appears to be a measure of success.
McClelland's findings concerning risk taking are compatible with another
statement by Schultz (1980, p. 442): "The bearing of risk does not distinguish between people who are entrepreneurs and those who are not entrepreneurs. . . . It bears repeating, the bearing of risk is not a unique attribute
of entrepreneurship."
Thus, the entrepreneur, instead of being a gambler or a thrill seeker, is
one who is driven primarily by a personal desire to succeed rather than by a
desire to take chances involving high degrees of risk. The objective of my
study was to investigate how achievement motivation and risk affect entrepreneurs and nonentrepreneurs in their selection of occupation. Using a national data set that provides test scores for both achievement motivation
and risk avoidance, I obtained empirical evidence that supports the belief
that the will to be independent and accomplished is more important for entrepreneurs. Also, the study findings indicate that personal risk-taking preferences are not significant in explaining entrepreneurial occupational
choice.
MODEL AND ANALYSIS
In this study, I examined human capital attributes that distinguish the entrepreneur from a control group of persons perceived as not being entrepreneurs. Government employees were used as proxies for economic agents
who conform to the latter category; self-employed workers represented the
entrepreneurs. The use of self-employed persons to examine entrepreneurship has been discussed by both Christensen (1971) and Schultz (1980).
Christensen (p. 576) stated: "An ideal measure of entrepreneurial labor income would consist of the wage times hours worked computed for all selfemployed workers in the economy." Schultz (p. 441) pointed out that the
economic domain of most entrepreneurs is small, but it must include small
farmers, students, housewives, and consumers in addition to the self-employed.'
Smith (1976, 1977), Bellante and Jackson (1979), Blank (1985), and others have studied earnings differentials between public-sector and privatesector workers. These studies provide evidence that government employment at all levels provides higher returns than those earned by workers in
the private sector who possess equivalent human capital.^ In addition, government employment is believed to be more secure than private employment; that is, the probability of unemployment is lower in the public sector.
If so, an explanation for why one chooses self-employment must involve the
nature of the relationships that influence occupational choice. Based on the
definitions of entrepreneurship cited in this paper, we would expect that one
reason for spurning the desirable features of public service jobs is that the
entrepreneur is an innately more motivated individual. The predicted results
for risk aversion are less clear. If the Schumpeter school of thought is corSummer 1988
^^
rect, an accurate empirical measure of risk taking should be an insignificant
determinant when choosing between self-employment and government employment. Conversely, test results that reject this hypothesis support the
view that innately risk-taking individuals possess a greater propensity to
choose entrepreneurial employment. To my knowledge, previous studies
have not addressed the choice between self-employment and public-sector
employment using a human capital model that controls for both motivation
and risk.
Data for the study were obtained from the Panel Study of Income Dynamics (PSID), a national longitudinal survey that has been conducted annually since 1968 by the Survey Research Center at the University of Michigan. The PSID provides extensive information on both the earnings and the
socioeconomic background of respondents. Most important, the PSID data
include measures for achievement motivation and risk avoidance that can
be used to examine their relationship to occupational choice.
The subsample used for this research consisted of 865 federal, state, and
local government employees and 414 self-employed workers, all of whom
were 20 to 65 years of age and heads of households (nonmilitary) in 1980.
Individuals who classified themselves as either retired or both self-employed
and employees were omitted from the sample. Individuals who classified
themselves as self-employed were coded by the number 1, and public-sector
employees were coded by 0. Table 1 contains the variable descriptive statis-
Table 1
Variable Descriptive Statistics
Public employees
Mean
S.D.
Symbol
Description and range
ED
Formal education in years
(2-17)
Potential full-time experience in
years (0-55)
Resides in southern region
(1 = yes; 0 = no)
Respondent's race
(1 = white; 0 = black)
Respondent's sex
(1 = male; 0 = female)
Test of achievement motivation
(0-16)
Test of risk avoidance
(0-9)
Average hourly earnings
in 1980
EXP
SOUTH
WHITE
MALE
ACHIEVE
RISK
WAGE
Sample size
Entrepreneurs
Mean
S.D.
12.2
1.11
12.69
3.06
18.93
12.40
22.76
12.14
0.49
0.50
0.37
0.48
0.52
0.50
0.86
0.34
0.73
0.44
0.96
0.20
8.93
2.71
9.42
2.56
4.69
1.64
5.05
1.73
$7.84
$4.09
$7.49
$7.66
865
414
Source. A Panel Study of Income Dynamics, conducted by the Survey Research Center, the Institute on
Social Research, the University of Michigan, Ann Arbor, Michigan, 1982,
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tics. Brief explanations of each of the human capital variables tested in this
study as determinants of occupational choice follow.
Education: The education variable (ED) measured the level of investment
in formal schooling. For both classes of workers in the analysis sample, the
average individual had completed almost thirteen years of schooling.
Experience: Human capital theory teaches that persons invest in the acquisition of general and specific productive skills after leaving full-time
schooling. As popularized by Jacob Mincer (1974), experience (EXP) is a
proxy for potential work experience (age-ED-5); the average self-employed
worker in the sample had approximately seven years more experience than
his public employee counterpart.
Other personal background: Additional regressors that were qualitative
rather than quantitative included the individual's regional residence, race,
and sex. All of these characteristics were treated as mutually exclusive
categories by a set of dummy variables. As shown in Table 1, a greater proportion of the entrepreneurs were white (WHITE) and male (MALE);
public employees were slightly more likely to reside in the southern region
(SOUTH).
Achievment motivation: Empirical studies in the human capital literature
often do not include motivation (ACHIEVE) as an explanatory variable.^
This is probably not an oversight in research design nor a rejection of the
theoretical importance of psychological factors. Instead, it may be argued
that the explanation is a paucity of data sets that analyze both economic and
personality factors.
Through the use of factor analysis, the PSID analysts derived a sixteenquestion test to measure achievement motivation. Each component was
equally weighted, and a value of either 1 or 0 was assigned, depending on
the reply. Examination of this series of questions (see Appendix A) reveals
that the index primarily measures the respondent's self-esteem. The range
for ACHIEVE was between 0 and 16, with 16 representing the highest level
for persona] motivation. Higher total scores were given to persons who visualized themselves as leaders and independent thinkers. As predicted, entrepreneurs in the sample had a higher mean score for this productive attribute.
Risk avoidance: The PSID is also a valuable source of information on the
relationship between occupational choice and risk decision making. In order to quantify the degree to which respondents have a preference for avoiding risk, the PSID analysts devised an eight-question test based on personal
decisions involving possible adverse consequences to the respondent's assets
or health. This index ranges from 0 to 9, with 9 representing the highest
level of risk aversion. The lower the total score for this variable, the greater
the likelihood that such persons will assume moderate risks; that is, there
are no life-threatening-circumstances questions (see Appendix B).'' The
mean scores for this personality trait in Table 1 were somewhat surprising.
The entrepreneurs were slightly more likely than their public employee cohorts to avoid risky circumstances.
Summer 1988
263
Finally, the mean wage was slightly less and the variance almost twice as
large for the sample of entrepreneurs than for the public employee group.
Thus, the entrepreneurial occupation provides a nominally lower mean
wage that is significantly more risky. It should be noted that the wider dispersion of earnings for entrepreneurs is interpreted as a measure of occupationsil risk and not as a direct estimate of one's personal characteristics as
captured by RISK. Fredland and Little (1981) and Christensen (1971) have
explained that entrepreneurs may accept a larger variation in income in exchange for the freedom of "being one's own boss" or for the ability to
choose one's activities. Observed earnings may understate these nonpecuniary rewards to the entreprenuer; if such unobserved values were included,
they might be of sufficient size to offset greater relative earnings variance.^
Following a theoretical model similar to the function employed by Bellante and Link (1981, p. 410), I estimated the probability of choosing to become self-employed (PSE) in terms of the following independent variables:
PSE = y(ED, EXP, EXP^ SOUTH, WHITE, MALE, ACHIEVE, RISK).
The squared EXP variable tests for the existence of a nonlinear relationship. An important difference between the above expression and the general
equation in the Bellante and Link study is that the model employed in this
study incuded both risk-aversion and achievement-motivation variables. To
test for the impact of these two personality traits on occupational choice, I
calculated estimates using maximum likelihood logit regression analysis.
The results are reported in Table 2.
Table 2
Maximum Likelihood Logit Regression Results:
Probability of Self-Employment Versus Public-Sector Employment
Variable
symbol
Constant
ED
EXP
EXP^
SOUTH
WHITE
MALE
ACHIEVE
RISK
Logit
coefficient
Standard
error
Partial
derivatives
-4.096**
-0.077**
0.094**
-0.002**
-0.012
1.668
1.696**
0.057*
-0.005
(0.031)
(0.024)
(0.0005)
(0.142)
(0.182)
(0.265)
(0.027)
(0.045)
_
-0.054
0.092
-0.062
-0.001
0.225
0.156
0.040
-0.001
- 2 X Log
Likelihood ratio: 1610.57**
Sample size: 1,279
Statislically significant al the 5 percent level or better.
Statistically significant at the I percent level or better.
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The dependent variable was dichotomous, taking a value of 1 if the subject was self-employed and 0 if the subject was a public-sector employee. In
the last column of the table, the marginal effect of each independent variable evaluated at the mean probability is shown beside the reported regression coefficients and standard errors.* Examination of the estimated coefficients in the first column of Table 2 reveals that all the variables in the regression were significant predictors at the 5 percent level or better of the
probability that a worker will be self-employed, except for SOUTH and
RISK. The estimated coefficient on ED is interesting because it was statistically significant at the 1 percent level or better and because the sign for this
regressor was negative. The interpretation using the estimated partial derivative for ED was that a one-year increase in formal education decreases the
probability by 5.4 percent of selecting self-employment instead of publicsector employment. The influence of EXP and EXP^ was also statistically
significant at the 1 percent level or better, and both variables displayed the
predicted signs.^ The estimated coefficient on SOUTH was insignificant,
and both the WHITE and MALE variables were statistically significant at
the 1 percent level or better with the expected sign. Consistent with the findings of other studies, the coefficient estimates for the effects of race and sex
suggest that blacks and females are less likely to become self-employed.'
Because this research focused on an investigation of the role of motivation and risk upon occupational choice, the estimated coefficients for these
two variables were crucial. First, the influence of ACHIEVE was positive
and statistically significant at the 5 percent level or better. The interpretation for the role of achievement motivation was that the probability of selfemployment is greater for persons who have higher total scores on the test
for personal desire to achieve success. Second, the sign for RISK was negative, as expected by some researchers. This might imply that the choice of
self-employment was higher for the less risk-averse respondent; however,
this potential impact was not statistically different from zero.'
To test for the effect of occupation on attitudes, I specified that the
ACHIEVE and RISK variables were dependent variables, and I estimated
separate ordinary least-squares regressions using each of these two proxies.
The regressors for both estimated relationships, the remaining variables
listed in Table 1, included a dummy variable (SELF) set to 1 for a self-employed worker and 0 for government employees. Consistent with the logit
results reported above, the SELF coefficient was positive and statistically
significant in the equation containing ACHIEVE as the dependent variable
and negative but insignificant in the regression using RISK as the dependent
variable.
In summary, the findings of this study are consistent with the arguments
by Schumpeter, Schultz, and others that entepreneurs are atypicedly motivated individuals, but they are not necessarily exceptional risk ta&ers. As
described in each definition of entrepreneurship referenced in this paper, a
significant factor determining the selection of self-employment instead of
public service is possession of a higher degree of personal initiative. In esSummer 1988
265
sence, this choice is related to the individual's desire to be independent,
meet challenges, be a leader, and think for one's self and is not related to
the notion that such persons are atypically disposed to "roll the dice."
CONCLUDING COMMENTS
This analysis provides evidence concerning the relative importance of two
principal characteristics that influence entrepreneurial labor force participation. First, the findings support the assumption that those who select public-sector employment tend to be less achievement motivated than their entrepreneurial counterparts are. Second, the common perception that entrepreneurs are likely to be persons with a low degree of aversion to risk is rejected.
Although the data in this study support rejection of the perhaps-moreorthodox view that entrepreneurs are unusual risk takers, this conclusion is
based on only one survey containing a relatively small number of self-employed workers. Given the importance of entrepreneurship, additional empirical economic research on this topic is certainly indicated.
APPENDIX A
Index on Achievement Motivation
Would quit job if no longer challenging
(1 point)
Rather have child be leader than popular
(1 point)
Rather have child be leader than do work teacher expects
(1 point)
Rather do better at what try than have more friends
(1 point)
Rather do better at what try than have others listen to your point of view
(I point)
Rather have job where think for self than work with nice group
(1 point)
Rather have job where think for self than have say in what goes on
(1 point)
Rather hear that opinion of self carried weight than people would like
living next door to him
(1 point)
Rather hear others say he can do what he sets his mind on doing
than other people like him
(1 point)
Rather hear others say about self that others go to him for important advice
than is fun at party
(1 point)
Does not get upset at all when taking test
(1 point)
Heartbeat normal when took tests
(1 point)
Did not worry about failure when took tests
(1 point)
Did not perspire when taking important tests
(1 point)
Would want to know more about tests if did well on them
(1 point)
Would think more about future tests if told doing well on test
(1 point)
Source: A Panel Study of Income Dynamics, conducted by the Survey Research Center, the Institute on
Social Research, the University of Michigan, Ann Arbor, Michigan, 1972.
APPENDIX B
Risk Avoidance
Newest (assumed to be best) car in good condition
All cars are insured
(1 point)
Uses seat belts some of the time
(1 point)
266
(1 point)
JOURNAL OF ECONOMIC EDUCATION
Uses seat belts all the time
(2 points)
Has medical insurance or a way to get free care
(1 point)
Head smokes less than one pack a day
(1 point)
Have some liquid savings but less than two months
(1 point)
Have two months' income saved
(2 points)
Source: Same as Appendix A.
NOTES
1. It should be noted that the distinction of entrepreneur is not unique to the self-employed.
For example, stockholders or government bureaucrats can be viewed as entrepreneurs,
whereas certain self-employed workers are only routine decision makers. Also, managers
and engineers in private firms may be considered entrepreneurs.
2. As presented in these articles and others, this conclusion holds at the federal, state, and
local levels of government, whether earnings are restricted to wage rates or whether fringe
benefits are added to wages.
3. For a recent study that makes a similar observation, see Walstad (1984, pp. 301-2).
4. Certainly, any index to measure risk preferences will be subject to criticism. As discussed by
Bellante and Link (p. 410), many of the questions in the PSID risk-aversion index relate to
income or wealth. Thus, the argument that the index to some degree reflects an ability
rather than a personal propensity to avert risk has validity. However, these index inquiries
also represent legitimate indicators for the respondent's attitude toward financial caution—an alleged key distinguishing characteristic of entrepreneurship.
5. Samuel Bowles (1972, pp. S38-40) gives an interesting theoretical presentation of the relationship between occupational choice, nonmonetary returns, and money income.
6. Both the achievment-motivation and risk-aversion indexes are measured ordinally rather
than cardinally. Thus, no meaningful interpretation can be given to the estimated partial derivatives for these regressions.
7. It is possible that differences in length of time as either a public employee or an entrepreneur may affect the interpretation of these results. To examine this argument, I included
years with current employer in the model instead of the reported experience variable. This
alternative specification did not change the findings reported in this study.
8. For example, Fuchs (1971) and Moore (1983) have expressed arguments that the self-employed are atypically influenced by consumer discrimination. In essence, government employees may be more removed from consumer bias by the nature of public service institutions. In fact, the issue of consumer discrimination or credentialism is an intriguing topic
for future research (see Tucker [1987]).
9. The probability relationship between the option to be a public-sector worker instead of a
private-sector worker and the estimated coefficient for risk aversion in the Bellante and
Link article was positive and significant at the 1 percent level or better. Their study, however, did not test for the option to become either self-employed or a government employee.
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