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

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  • Thomas Dunn
  • Douglas Holtz-Eakin
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    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.

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    File URL: http://www.nber.org/papers/w5622.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5622.

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    Date of creation: Jun 1996
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    Publication status: published as Journal of Labor Economics, vol. 18, no.2, (April, 2000), pp. 287-305.
    Handle: RePEc:nbr:nberwo:5622

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    1. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December.
    2. Joseph G. Altonji & Thomas A. Dunn, 1991. "Relationships Among the Family Incomes and Labor Market Outcomes of Relatives," NBER Working Papers 3724, National Bureau of Economic Research, Inc.
    3. Joseph G. Altonji & Thomas A. Dunn, 1994. "An Intergenerational Model of Wages, Hours and Earnings," NBER Working Papers 4950, National Bureau of Economic Research, Inc.
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