The environment for business creation is central to economic policy, as entrepreneurs are believed to be forces of innovation, employment and economic dynamism. We use data from the National Longitudinal Surveys (NLS) to investigate the relative importance of financial and human capital exploiting the variation provided by intergenerational links. Specifically, we estimate the impacts of parental wealth and human capital on the probability that an individual will make the transition from a wage and salary job to self-employment. We find that young men’s own financial assets exert a statistically significant, but quantitatively modest effect on the transition to self-employment. In contrast, the capital of parents exerts a large influence. Parents’ strongest effect runs not through financial means, but rather through human capital, i.e., the intergenerational correlation in self-employment. This link is even stronger along gender lines.
This research was in part funded by the Bureau of Labor Statistics
Metropolitan Studies Program Series
The authors thank Donald Bruce and Chris Furgiuele for outstanding research assistance, and Esther Gray, Ann Wicks, and Jodi Woodson for their help in preparing the manuscript. They also thank seminar participants at the Bureau of Labor Statistics, NLS Summer Workshop, Cornell University, Princeton University, Syracuse University, and the University of Rochester for helpful comments.
Economic Policy | Economics | Public Affairs, Public Policy and Public Administration | Public Policy
Dunn, Thomas and Holtz-Eakin, Douglas, "Financial Capital, Human Capital, and the Transition to Self-Employment; Evidence from Intergenerational Links" (1996). Center for Policy Research. 452.
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