Working Paper: NBER ID: w5622
Authors: Thomas Dunn; Douglas Holtz-Eakin
Abstract: 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.
Keywords: self-employment; human capital; financial capital; intergenerational links
JEL Codes: J24; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parental wealth (G51) | likelihood of transitioning to self-employment (L26) |
| Parental human capital (J24) | likelihood of transitioning to self-employment (L26) |
| Young men's financial assets (G51) | likelihood of transitioning to self-employment (L26) |
| Parental wealth and human capital (D29) | self-employment decisions (J23) |
| Parental wealth and human capital (D29) | intergenerational correlation in self-employment (L26) |