Mobility of Skills and Ideas

This paper examines and tests how the composition of human capital that workers acquire on-the-job determines the decision to found spinoffs and the know-how that entrepreneurs exploit in the new firm. I argue that given the different degree of specialisation in small and large firms, entrepreneurs emerging from small firms transfer knowledge from more diverse aspects of the business and create spinoffs more related to the main activity of the incumbent firm. Workers in large firms, however, benefit from higher returns to human capital that increase their opportunity costs to switch to an occupation that requires a different combination of skills. Since becoming an entrepreneur implies performing multiple tasks and makes part of their specialised skills unutilised, the minimum quality of the business idea at which they are willing to reveal the discovery is higher and, therefore, entrepreneurs emerging from large firms are of highest quality.