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Modelling the Determinants of Job Creation: Microeconometric Models Accounting for Latent Entrepreneurial Ability

Listed author(s):
  • Abdelfatah Ichou
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    During the last decades, most developed countries have shown a remarcable increase in entrepreneurship rates. Recent research suggests that this increase is, for a considerable part, caused by an increase in the share of solo self-employed. Nowadays, for example, more than half of all Dutch business owners are solo self-employed. This raises the question which factors determine whether an entrepreneur becomes an employer or remains solo self-employed. A recent study by EIM investigates the decision of entrepreneurs whether or not to become an employer and the decision of employers to hire a certain number of employees. The first decision is examined by estimating duration models that model the duration of the time spent as solo entrepreneur before the transition to employer is made. The estimations are performed on a panel of Dutch start-ups in 1998, 1999 and 2000. We find that entrepreneurs who founded a firm to improve their work-life balance are less likely to make the transition to employership. The remaining factors that we found to influence the employer decision do this all in a positive way. These factors include whether or not the entrepreneur has the objective to maximize revenue, experience within the industry in which he operates, his entrepreneurial experience, selfefficacy, risk attitude and the time that is spent in the company. We also find that the likelihood of becoming a job creator is positively related to the business cycle. The second decision is examined by estimating count models that model the number of employees that are hired in the first year of employership. We find that higher levels of educational, entrepreneurial experience and self-efficacy of the entrepreneur lead to a greater firm size. Another factor that increases firm size is innovativeness. The moment in time at which the transition from soloentrepreneur to employer is made, also plays are role. For the first few years we find a negative relationship with firm age, indicating that the faster the switch is made, the more personnel will be employed. Also, for the employee decision we find a positive relation with the business cycle.

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    Paper provided by EIM Business and Policy Research in its series Scales Research Reports with number H201018.

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    Length: 62 pages
    Date of creation: 09 Aug 2010
    Handle: RePEc:eim:papers:h201018
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    1. Westhead, Paul & Cowling, Marc, 1995. "Employment Change in Independent Owner-Managed High-Technology Firms in Great Britain," Small Business Economics, Springer, vol. 7(2), pages 111-140, April.
    2. Heij, Christiaan & de Boer, Paul & Franses, Philip Hans & Kloek, Teun & van Dijk, Herman K., 2004. "Econometric Methods with Applications in Business and Economics," OUP Catalogue, Oxford University Press, number 9780199268016.
    3. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 63-132.
    4. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey Rosen, 1996. "Income Taxes and Entrepreneur' Use of Labor," Working Papers 752, Princeton University, Department of Economics, Industrial Relations Section..
    5. Jan de Kok & Ingrid Verheul & Abdelfatah Ichou, 2010. "New Firm Performance: Does the Age of Founders Affect Employment Creation?," Scales Research Reports H201015, EIM Business and Policy Research.
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