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Hierarchies, the Small Firm Effect, and Entrepreneurship: Evidence from Swedish Microdata

  • Tåg, Joacim

    ()

    (Research Institute of Industrial Economics (IFN))

  • Åstebro, Thomas

    (HEC Paris)

  • Thompson, Peter

    (Goizueta Business School)

We explore whether the tendency for smaller firms to have fewer hierarchical layers explains the well-documented inverse correlation between firm size and the rate at which employees become business owners. Our analysis is based on a Swedish matched employer-employee dataset. Conditional on firm size, employees in firms with more layers are less likely to enter entrepreneurship, to become self-employed, 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 self-employment. However, hierarchies constitute only a partial explanation of the small firm effect. Potential explanations for the effects of layers are examined. Part of the effect appears to be due to preference sorting by employees, and part due to employees in firms with fewer layers having a broader range of skills.

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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: 31 pages
Date of creation: 13 Feb 2013
Date of revision:
Publication status: Forthcoming as Tåg, Joacim, Thomas Åstebro and Peter Thompson, 'Hierarchies, the Small Firm Effect, and Entrepreneurship: Evidence from Swedish Microdata' in European Economic Review, 2016.
Handle: RePEc:hhs:iuiwop:0954
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Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

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  1. Frederiksen, Anders, 2006. "Gender Differences in Job Separation Rates and Employment Stability: New Evidence from Employer-Employee Data," IZA Discussion Papers 2147, Institute for the Study of Labor (IZA).
  2. Andersson, Martin & Klepper, Steven, 2012. "Characteristics and Performance of New Firms and Spinoffs in Sweden," Papers in Innovation Studies 2012/4, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
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  8. Bruno S. Frey & Matthias Benz, 2003. "Being Independent is a Great Thing: Subjective Evaluations of Self-Employment and Hierarchy," CESifo Working Paper Series 959, CESifo Group Munich.
  9. Thomas B. Astebro & Jing Chen & Peter Thompson, 2011. "Stars and Misfits: Self-Employment and Labor Market Frictions," Post-Print hal-00647945, HAL.
  10. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
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