IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v56y2012i2p263-276.html
   My bibliography  Save this article

How former business owners fare in the labor market? Job assignment and earnings

Author

Listed:
  • Baptista, Rui
  • Lima, Francisco
  • Preto, Miguel Torres

Abstract

This study uses detailed longitudinal matched employer–employee data to examine the impact of entrepreneurial experience on job assignments, careers, and wages. The results suggest that there are significant differences in career mobility between former business owners and workers who were always wage employees. Former business owners enter firms at higher job levels and progress faster up the hierarchy than wage employees without entrepreneurial experience. The majority of the former business owners find jobs in small firms. The return to business ownership experience is lower than the return to wage employee experience, thus suggesting that the labor market imposes a penalty for business ownership experience.

Suggested Citation

  • Baptista, Rui & Lima, Francisco & Preto, Miguel Torres, 2012. "How former business owners fare in the labor market? Job assignment and earnings," European Economic Review, Elsevier, vol. 56(2), pages 263-276.
  • Handle: RePEc:eee:eecrev:v:56:y:2012:i:2:p:263-276
    DOI: 10.1016/j.euroecorev.2011.08.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292111000808
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.euroecorev.2011.08.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-122, February.
    2. Philip Oreopoulos & Till von Wachter & Andrew Heisz, 2006. "The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates," NBER Working Papers 12159, National Bureau of Economic Research, Inc.
    3. Bruce, Donald & Schuetze, Herbert J., 2004. "The labor market consequences of experience in self-employment," Labour Economics, Elsevier, vol. 11(5), pages 575-598, October.
    4. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 315-339.
    5. Thomas J. Dohmen & Ben Kriechel & Gerard A. Pfann, 2004. "Monkey bars and ladders: The importance of lateral and vertical job mobility in internal labor market careers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(2), pages 193-228, June.
    6. José Varejão & Pedro Portugal, 2007. "Employment Dynamics and the Structure of Labor Adjustment Costs," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 137-165.
    7. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    8. Williams, Donald R., 2000. "Consequences of self-employment for women and men in the United States," Labour Economics, Elsevier, vol. 7(5), pages 665-687, September.
    9. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    10. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 921-955.
    11. Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, vol. 17(2), pages 303-316, April.
    12. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4, National Bureau of Economic Research, Inc.
    13. Edward P. Lazear, 2004. "Balanced Skills and Entrepreneurship," American Economic Review, American Economic Association, vol. 94(2), pages 208-211, May.
    14. Calvo, Guillermo A & Wellisz, Stanislaw, 1979. "Hierarchy, Ability, and Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 991-1010, October.
    15. Hyytinen, Ari & Rouvinen, Petri, 2008. "The labour market consequences of self-employment spells: European evidence," Labour Economics, Elsevier, vol. 15(2), pages 246-271, April.
    16. P. A. Geroski & José Mata & Pedro Portugal, 2010. "Founding conditions and the survival of new firms," Strategic Management Journal, Wiley Blackwell, vol. 31(5), pages 510-529, May.
    17. Robert Gibbons & Michael Waldman, 2006. "Enriching a Theory of Wage and Promotion Dynamics inside Firms," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 59-108, January.
    18. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    19. Lazear, Edward P. & Oyer, Paul, 2004. "Internal and external labor markets: a personnel economics approach," Labour Economics, Elsevier, vol. 11(5), pages 527-554, October.
    20. Åstebro, Thomas & Thompson, Peter, 2011. "Entrepreneurs, Jacks of all trades or Hobos?," Research Policy, Elsevier, vol. 40(5), pages 637-649, June.
    21. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    22. J. Wagner, 2003. "Testing Lazear's jack-of-all-trades view of entrepreneurship with German micro data," Applied Economics Letters, Taylor & Francis Journals, vol. 10(11), pages 687-689.
    23. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    24. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, September.
    25. A. Michael Spence, 1975. "The Economics of Internal Organization: An Introduction," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 163-172, Spring.
    26. Kaiser, Ulrich & Malchow-Møller, Nikolaj, 2011. "Is self-employment really a bad experience?: The effects of previous self-employment on subsequent wage-employment wages," Journal of Business Venturing, Elsevier, vol. 26(5), pages 572-588, September.
    27. Donald R. Williams, 2004. "Youth Self Employment: Its Nature and Consequences," Small Business Economics, Springer, vol. 23(4), pages 323-336, November.
    28. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
    29. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123-123.
    30. Robert Gibbons & Michael Waldman, 2004. "Task-Specific Human Capital," American Economic Review, American Economic Association, vol. 94(2), pages 203-207, May.
    31. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June.
    32. Mata, Jose & Machado, Jose A. F., 1996. "Firm start-up size: A conditional quantile approach," European Economic Review, Elsevier, vol. 40(6), pages 1305-1323, June.
    33. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
    34. Westhead, Paul & Wright, Mike, 1998. "Novice, portfolio, and serial founders: are they different?," Journal of Business Venturing, Elsevier, vol. 13(3), pages 173-204, May.
    35. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    36. Taylor, Mark P, 1996. "Earnings, Independence or Unemployment: Why Become Self-Employed?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 253-266, May.
    37. Spurr, Stephen J, 1987. "How the Market Solves an Assignment Problem: The Matching of Lawyers with Legal Claims," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 502-532, October.
    38. Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1321-1358.
    39. Paul Oyer, 2006. "Initial Labor Market Conditions and Long-Term Outcomes for Economists," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 143-160, Summer.
    40. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352-352.
    41. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
    42. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 881-919.
    43. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
    44. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    45. Cardoso, Ana Rute, 2006. "Wage mobility: do institutions make a difference?," Labour Economics, Elsevier, vol. 13(3), pages 387-404, June.
    46. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
    47. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rocha, Vera & Carneiro, Anabela & Amorim Varum, Celeste, 2015. "Serial entrepreneurship, learning by doing and self-selection," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 91-106.
    2. Du, Shihan & Homrighausen, Pia & Wilke, Ralf A., 2018. "On omitted variables, proxies and unobserved effects in analysis of administrative labour market data," FDZ Methodenreport 201806_en, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Vera Rocha & Anabela Carneiro & Celeste Varum, 2015. "Entry and exit dynamics of nascent business owners," Small Business Economics, Springer, vol. 45(1), pages 63-84, June.
    4. Lougui, Monia & Broström, Anders, 2020. "The Labor Market Value of Experience from Temporary Self-employment," Working Paper Series in Economics and Institutions of Innovation 484, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    5. Rui Baptista & Francisco Lima & Miguel Preto, 2013. "Entrepreneurial skills and workers’ wages in small firms," Small Business Economics, Springer, vol. 40(2), pages 309-323, February.
    6. Rui Baptista & Murat Karaöz & João Correia Leitão, 2020. "Diversification by young, small firms: the role of pre-entry resources and entry mistakes," Small Business Economics, Springer, vol. 55(1), pages 103-122, June.
    7. Canidio, Andrea & Legros, Patrick, 2016. "The Value of Entrepreneurial Failures: Task Allocation and Career Concerns," CEPR Discussion Papers 11295, C.E.P.R. Discussion Papers.
    8. Joonkyu Choi, 2018. "Entrepreneurial Risk-Taking, Young Firm Dynamics, and Aggregate Implications," 2018 Meeting Papers 1018, Society for Economic Dynamics.
    9. Failla, Virgilio & Melillo, Francesca & Reichstein, Toke, 2017. "Entrepreneurship and employment stability — Job matching, labour market value, and personal commitment," Journal of Business Venturing, Elsevier, vol. 32(2), pages 162-177.
    10. Merida, Adrian L. & Rocha, Vera, 2021. "It's about time: The timing of entrepreneurial experience and the career dynamics of university graduates," Research Policy, Elsevier, vol. 50(1).
    11. André Stel & Ana Millán & José María Millán & Concepción Román, 2018. "The relationship between start-up motive and earnings over the course of the entrepreneur’s business tenure," Journal of Evolutionary Economics, Springer, vol. 28(1), pages 101-123, January.
    12. Canidio, Andrea & Legros, Patrick, 2019. "Task Discretion, Labor Market Frictions and Entrepreneurship," CEPR Discussion Papers 13954, C.E.P.R. Discussion Papers.
    13. repec:iab:iabfme:201806(en is not listed on IDEAS
    14. Alessandra Luzzi & Amir Sasson, 2016. "Individual Entrepreneurial Exit and Earnings in Subsequent Paid Employment," Entrepreneurship Theory and Practice, , vol. 40(2), pages 401-420, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    2. Robert Gibbons & Michael Waldman, 2006. "Enriching a Theory of Wage and Promotion Dynamics inside Firms," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 59-108, January.
    3. Kaiser, Ulrich & Malchow-Møller, Nikolaj, 2011. "Is self-employment really a bad experience?: The effects of previous self-employment on subsequent wage-employment wages," Journal of Business Venturing, Elsevier, vol. 26(5), pages 572-588, September.
    4. Michael Waldman, 2012. "Theory and Evidence in Internal Labor Markets," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.),The Handbook of Organizational Economics, Princeton University Press.
    5. Thomas Åstebro & Jing Chen & Peter Thompson, 2011. "Stars and Misfits: Self-Employment and Labor Market Frictions," Management Science, INFORMS, vol. 57(11), pages 1999-2017, November.
    6. Failla, Virgilio & Melillo, Francesca & Reichstein, Toke, 2017. "Entrepreneurship and employment stability — Job matching, labour market value, and personal commitment," Journal of Business Venturing, Elsevier, vol. 32(2), pages 162-177.
    7. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    8. Dohmen, Thomas J., 2004. "Performance, seniority, and wages: formal salary systems and individual earnings profiles," Labour Economics, Elsevier, vol. 11(6), pages 741-763, December.
    9. Alessandra Luzzi & Amir Sasson, 2016. "Individual Entrepreneurial Exit and Earnings in Subsequent Paid Employment," Entrepreneurship Theory and Practice, , vol. 40(2), pages 401-420, March.
    10. Dirk Oberschachtsiek, 2012. "The experience of the founder and self-employment duration: a comparative advantage approach," Small Business Economics, Springer, vol. 39(1), pages 1-17, July.
    11. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    12. Bas Klaauw & António Dias da Silva, 2011. "Wage dynamics and promotions inside and between firms," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1513-1548, October.
    13. Fossen, Frank M. & Büttner, Tobias J.M., 2013. "The returns to education for opportunity entrepreneurs, necessity entrepreneurs, and paid employees," Economics of Education Review, Elsevier, vol. 37(C), pages 66-84.
    14. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
    15. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    16. Jin Li & Jun Yu, 2017. "A Theory Of Turnover And Wage Dynamics," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 223-236, January.
    17. Lougui, Monia & Broström, Anders, 2020. "The Labor Market Value of Experience from Temporary Self-employment," Working Paper Series in Economics and Institutions of Innovation 484, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    18. Brilon, Stefanie, 2015. "Job assignment with multivariate skills and the Peter Principle," Labour Economics, Elsevier, vol. 32(C), pages 112-121.
    19. Takii, Katsuya & Sasaki, Masaru & Wan, Junmin, 2020. "Synchronized job transfer and task-specific human capital," Journal of the Japanese and International Economies, Elsevier, vol. 56(C).
    20. Dato, Simon & Grunewald, Andreas & Kräkel, Matthias & Müller, Daniel, 2016. "Asymmetric employer information, promotions, and the wage policy of firms," Games and Economic Behavior, Elsevier, vol. 100(C), pages 273-300.
    21. Michael Bognanno & Eduardo Melero, 2012. "Promotion Signals, Age and Education," DETU Working Papers 1205, Department of Economics, Temple University.

    More about this item

    Keywords

    Entrepreneurship; Business owner experience; Internal labor markets; Task-specific human capital; Matched employer–employee data;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:56:y:2012:i:2:p:263-276. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/eer .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.