Working Paper: CEPR ID: DP16185
Authors: Chongen Bai; Hongbin Li; Ruixue Jia; Xin Wang
Abstract: The theoretical literature has long noted that talent can be used in both the entrepreneurial and non-entrepreneurial sectors, and its allocation depends on the reward restructure. We test these hypotheses by linking administrative college admissions data for 1.8 million individuals with the universe of firm registration records in China. Within a college, we find that individuals with higher college entrance exam scores -- the most important measure of talent in this context -- are less likely to create firms, but, when they do, their firms are more successful than those of their lower-score counterparts. Additional survey data suggest that higher-score individuals enjoy higher wages and are more likely to join the state sector. Moreover, the score-to-firm creation relationship varies greatly across industry, according to the size of the state sector. These findings suggest that the score is positively associated with both entrepreneurial ability and wage-job ability but higher-score individuals are attracted away by wage jobs, particularly those of the state sector.
Keywords: human capital; allocation of talent; firm entry and exit; firm success
JEL Codes: H11; J24; L26; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher college entrance exam scores (gaokao) (D29) | Less likelihood of firm creation (L26) |
| Less likelihood of firm creation (L26) | Higher firm success when firms are created (L26) |
| Higher college entrance exam scores (gaokao) (D29) | Higher entrepreneurial ability (L26) |
| Higher college entrance exam scores (gaokao) (D29) | Attraction to wage jobs, particularly in the state sector (J68) |
| Higher state sector penetration (H76) | Lower entrepreneurial activity among higher score individuals (L26) |