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Hierarchies and Entrepreneurship

Listed author(s):
  • Tåg, Joacim

    ()

    (Research Institute of Industrial Economics (IFN))

  • Åstebro, Thomas

    (HEC Paris)

  • Thompson, Peter

    (Goizueta Business School)

We establish a correlation between the hierarchical structure of a firm and the likelihood of business creation among its former employees, using a sample of 16 million observations of Swedish workers and a novel proxy for hierarchies based on occupation data. Conditional on firm size and many other variables, employees in firms with more layers are less likely to enter entrepreneurship, to become selfemployed, and to switch to another employer. The effects of layers are much stronger for business creation than for jobswitching and they are stronger for entrepreneurship than for selfemployment. We discuss two potential explanations for the distinctive hierarchy effect we find. Part of the effect could be to be due to preference sorting by employees, and part due to employees in firms with fewer layers having a broader range of skills. One test showing that the probability of entrepreneurship increases with their prior rank in an organization is consistent with ability sorting and inconsistent with preference sorting.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 954.

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Length: 46 pages
Date of creation: 13 Feb 2013
Date of revision: 28 Nov 2016
Publication status: Published as Tåg, Joacim, Thomas Åstebro and Peter Thompson, 'Hierarchies and Entrepreneurship' in European Economic Review, 2016, pages 129-147.
Handle: RePEc:hhs:iuiwop:0954
Contact details of provider: Postal:
Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
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