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Families, Human Capital, and Small Business: Evidence from the Characteristics of Business Owners Survey

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  • Robert Fairlie
  • Alicia Robb

Abstract

An important finding in the rapidly growing literature on self-employment is that the probability of self-employment is substantially higher among the children of business owners than among the children of non-business owners. Using data from the confidential and restricted-access Characteristics of Business Owners (CBO) Survey, we provide some suggestive evidence on the causes of intergenerational links in business ownership and the related issue of how having a family business background affects small business outcomes. Estimates from the CBO indicate that more than half of all business owners had a self-employed family member prior to starting their business. Conditional on having a self-employed family member, less than 50 percent of small business owners worked in that family member's business suggesting that it is unlikely that intergenerational links in self-employment are solely due to the acquisition of general and specific business capital and that instead similarities across family members in entrepreneurial preferences may explain part of the relationship. In contrast, estimates from regression models conditioning on business ownership indicate that having a self-employed family member plays only a minor role in determining small business outcomes, whereas the business human capital acquired from prior work experience in a family member's business appears to be very important for business success. Estimates from the CBO also indicate that only 1.6 percent of all small businesses are inherited suggesting that the role of business inheritances in determining intergenerational links in self-employment is limited at best.

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File URL: ftp://ftp2.census.gov/ces/wp/2005/CES-WP-05-07.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 05-07.

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Length: 28 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:cen:wpaper:05-07

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  1. Timothy Bates & Robert McGuckin, 1990. "The Characteristics of Business Owners Data Base," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 736-751.
  2. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
  3. Fairlie, Robert, 2014. "Drug Dealing and Legitimate Self-Employment," Santa Cruz Department of Economics, Working Paper Series qt3p38k7c8, Department of Economics, UC Santa Cruz.
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