The Role of Education in Self-Employment Success in Finland

This paper analyzes the effect of self-employed persons' education on the success of their firms during the economic downturn and upturn of the 1990's. It is found that the business cycle affects the relative closure rates of firms run by self-employed with any level of education. Exit probability is lower for the highly educated during bust, but higher in boom. This is accounted for by two facts. First, running a small firm is argued to be a less attractive choice to wage work, particularly for the highly educated, due to lower earning prospects, less stable stream of earnings, and the cultural tradition of working in large corporations. Second, the highly educated faced a higher outside demand for their labor than did the less educated during economic upturn. Finally, it was found that regardless of the state of aggregate economy, firms run by the highly educated have higher growth probabilities than those run by less educated persons. Copyright 2000 Gatton College of Business and Economics, University of Kentucky.