Are Education and Entrepreneurial Income Endogenous? A Bayesian Analysis

Education is a well-known driver of (entrepreneurial) income. The measurement of its influence, however, suffers from endogeneity suspicion. For instance, ability and occupational choice are mentioned as driving both the level of (entrepreneurial) income and of education. Using instru-mental variables can provide a way out. However, two questions remain: whether endogeneity is really present and whether it matters for the size of the estimated relationship. Using Bayesian methods, we find that the relationship between education and entrepreneurial income is indeed en-dogenous and that the impact of endogeneity on the estimated relationship between education and income is sizeable. Implications of our findings for research and practice are discussed.