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Sorting on Unobserved Skills into New Firms

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Abstract

Human capital features prominently in theoretical work on post-entry performance of new firms. Empirical analysis has, however, to a large extent overlooked the unobserved component of human capital focusing on years of education or labor market experience. This paper adds to the literature on worker characteristics and post-entry firm performance by putting the unobserved quality of workers in the center of analysis. I find strong evidence that new firms on average employ workers of lower unobserved quality relative to incumbent firms. Among new firms workers of higher unobserved quality are overrepresented in spin-offs and incorporated new firms. I further show that unobserved quality of workers is important for the post-entry performance of firms as it is a strong predictor of new firm survival.

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  • Knutsson, Polina, 2018. "Sorting on Unobserved Skills into New Firms," Working Papers 2018:38, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2018_038
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    More about this item

    Keywords

    Human capital; occupational choice; sorting; new firms;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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