NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links

Thomas Dunn, Douglas Holtz-Eakin

NBER Working Paper No. 5622 (Also Reprint No. r2275)
Issued in June 1996
NBER Program(s):   LS   PE

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.

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Document Object Identifier (DOI): 10.3386/w5622

Published: Journal of Labor Economics, vol. 18, no.2, (April, 2000), pp. 287-305.

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