Working Paper: NBER ID: w28865
Authors: Chongen Bai; Ruixue Jia; Hongbin Li; 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 structure. 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: entrepreneurship; talent allocation; firm creation; China
JEL Codes: H11; J24; O12; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher gaokao scores (D29) | Lower probability of firm creation (L26) |
| Higher gaokao scores (D29) | Higher wages (J39) |
| Higher gaokao scores (D29) | Increased likelihood of entering state sector (J45) |
| Higher gaokao scores (D29) | Higher likelihood of starting larger firms (L26) |
| Higher gaokao scores (D29) | Higher likelihood of expanding into non-local markets (F69) |
| Higher gaokao scores (D29) | Higher likelihood of surviving in the market (G17) |
| Higher gaokao scores (D29) | Earnings in wage jobs (J31) |
| Higher state sector penetration (H76) | Decreased likelihood of firm creation among higher-scoring individuals (L26) |