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Families, Human Capital, and Small Business: Evidence from the Characteristics of Business Owners Survey

  • Fairlie, Robert W
  • Robb, Alicia

An important finding in the rapidly growing literature on self-employment is that the probability of self-employment is substantially higher among the children of business owners than among the children of non-business owners. Using data from the confidential and restricted-access Characteristics of Business Owners (CBO) Survey, we provide some suggestive evidence on the causes of intergenerational links in business ownership and the related issue of how having a family business background affects small business outcomes. Estimates from the CBO indicate that more than half of all business owners had a self-employed family member prior to starting their business. Conditional on having a self-employed family member, less than 50 percent of small business owners worked in that family member's business suggesting that it is unlikely that intergenerational links in self-employment are largely due to the acquisition of general and specific business human capital and that instead similarities across family members in entrepreneurial preferences may explain part of the relationship. In contrast, estimates from regression models conditioning on business ownership indicate that having a self-employed family member plays only a minor role in determining small business outcomes, whereas the business human capital acquired from prior work experience in a family member's business appears to be very important for business success. Estimates from the CBO also indicate that only 1.6 percent of all small businesses are inherited suggesting that the role of business inheritances in determining intergenerational links in self-employment is limited at best.

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Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt6td6x9ht.

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Date of creation: 01 Dec 2005
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Handle: RePEc:cdl:ucscec:qt6td6x9ht
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  1. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
  2. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  3. Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-79, August.
  4. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
  5. Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1993. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Working Papers 698, Princeton University, Department of Economics, Industrial Relations Section..
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  7. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January.
  8. Robert W. Fairlie, 1999. "Drug Dealing and Legitimate Self-Employment," JCPR Working Papers 88, Northwestern University/University of Chicago Joint Center for Poverty Research.
  9. Michael Hout & Harvey Rosen, 2000. "Self-Employment, Family Background, and Race," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 670-692.
  10. Bruderl, Josef & Preisendorfer, Peter, 1998. " Network Support and the Success of Newly Founded Businesses," Small Business Economics, Springer, vol. 10(3), pages 213-25, May.
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  12. Boden, Richard Jr., 1996. "Gender and self-employment selection: An empirical assessment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 25(6), pages 671-682.
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  15. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc.
  16. Timothy Bates & Robert McGuckin, 1990. "The Characteristics of Business Owners Data Base," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 736-751.
  17. Thomas Dunn & Douglas Holtz-Eakin, 1996. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc.
  18. Greg Hundley, 2000. "Male/female earnings differences in self-employment: The effects of marriage, children, and the household division of labor," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(1), pages 95-114, October.
  19. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  20. Frazer, Garth, 2006. "Learning the master's trade: Apprenticeship and human capital in Ghana," Journal of Development Economics, Elsevier, vol. 81(2), pages 259-298, December.
  21. BodenJR., Richard J. & Nucci, Alfred R., 2000. "On the survival prospects of men's and women's new business ventures," Journal of Business Venturing, Elsevier, vol. 15(4), pages 347-362, July.
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