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Entrepreneurial skills and workers’ wages in small firms

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  • Rui Baptista

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  • Francisco Lima
  • Miguel Preto

Abstract

This paper contributes to the understanding of how small firms are organized and managed. It tests an entrepreneur-worker matching model in small entrepreneurial firms. The model contemplates the existence of complementarities between workers’ and entrepreneur’s skills. Using a Portuguese longitudinal matched employer–employee dataset for the period 1995–2003, the empirical analysis provides descriptive results consistent with the matching model: skill stratification—entrepreneurs are more skilled than workers; scale effects—more skilled entrepreneurs run larger firms, though limited by the restriction on firm size; and positive sorting—more skilled entrepreneurs matched with more skilled workers. The estimation of wage regressions shows that the higher the level of education and experience of the entrepreneur, the higher the wage premium for workers. Results suggest that workers’ wages reflect the value of the match with entrepreneur’s skills. Thus, entrepreneurial skills have an impact not only on job creation, but also on the quality of jobs created. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • 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.
  • Handle: RePEc:kap:sbusec:v:40:y:2013:i:2:p:309-323
    DOI: 10.1007/s11187-012-9463-7
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    References listed on IDEAS

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    Cited by:

    1. Damiani, Mirella & Ricci, Andrea, 2016. "Training, quality of management and firm level bargaining," MPRA Paper 72138, University Library of Munich, Germany.
    2. Damiani, Mirella & Ricci, Andrea, 2016. "Training, quality of management and firm level bargaining," MPRA Paper 72209, University Library of Munich, Germany.
    3. OKAMURO, Hiroyuki & KATO, Masatoshi, 2015. "Determinants of Quantitative and Qualitative Employment Growth: A Comparison between R&D-oriented and Other Start-ups in Japan," CCES Discussion Paper Series 62, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    4. Vera Rocha & Mirjam van Praag & Anabela Carneiro, 2015. "Deviating from the benchmarks: Human capital inputs and the survival of new startups," CEF.UP Working Papers 1502, Universidade do Porto, Faculdade de Economia do Porto.
    5. Rui Baptista & Murat Karaöz & Joana Mendonça, 2014. "The impact of human capital on the early success of necessity versus opportunity-based entrepreneurs," Small Business Economics, Springer, vol. 42(4), pages 831-847, April.
    6. Rocha, Vera & van Praag, Mirjam C. & Folta, Timothy B. & Carneiro, Anabela, 2016. "Entrepreneurial Choices of Initial Human Capital Endowments and New Venture Success," IZA Discussion Papers 9919, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Entrepreneurship; Matching; Positive sorting; Small firms; Wages; L26; J24; J31; M52;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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