Effects of Human Capital on Entrepreneurial Income: The Mediating Role of Motivation to Start a Business

Abstract

Human capital is a critical determinant of entrepreneurial success and income generation, particularly during the period between 2018 and 2024, which was characterized by rapid digitalization, global economic fluctuations and the post pandemic recovery of small and medium enterprises (SMEs). This study investigates the impact of human capital on entrepreneurial income, incorporating motivation to start a business as a mediating variable, using secondary data collected from different sources. Human capital was operationalized through measures of education, work experience, digital and managerial skills and entrepreneurial training. Motivation was categorized into opportunity driven and necessity driven, while entrepreneurial income was measured using revenue, profit margins and income growth indicators.

The study employs a Partial Least Squares Structural Equation Modeling (PLS - SEM) approach to test direct and indirect relationships among variables. Reliability and validity analyses demonstrate high internal consistency and convergent validity of all constructs. Structural model results indicate that human capital has a significant direct effect on entrepreneurial income (β = 0.43, p < .001) and a substantial indirect effect through motivation (β = 0.22, p < .01). Opportunity driven motivation emerges as a stronger mediator than necessity driven motivation, highlighting the importance of intrinsic entrepreneurial intent and opportunity recognition for higher income outcomes. The model shows moderate to strong explanatory power, with R² values of 0.30 for motivation and 0.49 for entrepreneurial income, indicating robust predictive relevance.

These findings provide evidence that enhancing human capital through education, skill development and training programs not only equips entrepreneurs with necessary capabilities but also strengthens opportunity driven motivation, ultimately leading to higher income levels and SMEs growth. Policy implications include the need for government and institutional interventions to promote entrepreneurship education, digital skills training and support mechanisms that foster opportunity oriented ventures. The study contributes to the literature by integrating human capital theory and motivation research, offering empirical insights into the mechanisms through which skills and knowledge translate into entrepreneurial success in contemporary economic contexts.