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The Role of Education in Self-Employment Success


  • Aki Kangasharju


  • Sari Pekkala



This paper analyses the effect of the education of the self-employed on the success of their firms during economic downturn and upturn in the 1990s in Finland. We find that the business cycle affects the relative closure rates of firms run by the self-employed with any level of education. Exit probability is lower for the highly educated during bust, but higher in boom. This is accounted for by two facts. First, running a small firm is argued to be a less attractive choice to wage work particularly for the highly educated due to lower earnings prospects, less stable stream of earnings and the cultural tradition of working in large corporations. Second, the highly educated face a higher outside demand for their labour than the less educated during economic upturn. Finally, we find that regardless of the state of the aggregate economy, firms run by the highly educated have higher growth probabilities than those run by less educated ones.

Suggested Citation

  • Aki Kangasharju & Sari Pekkala, 2001. "The Role of Education in Self-Employment Success," Studies in Economics 0116, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:0116

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    References listed on IDEAS

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    Cited by:

    1. repec:isv:jouijm:v:6:y:2017:i:1:p:131-144 is not listed on IDEAS
    2. Oberschachtsiek, Dirk, 2010. "How do local labor market conditions and individual characteristics affect quitting selfemployment?," Discussion Papers, Presidential Department P 2010-001, Social Science Research Center Berlin (WZB).
    3. Mika Haapanen & Hannu Tervo, 2009. "Self-employment duration in urban and rural locations," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2449-2461.
    4. José María Millán & Emilio Congregado & Concepción Román, 2010. "Determinants of Self-Employment Dynamics and their Implications on Entrepreneurial Policy Effectiveness," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 72, pages 45-76.
    5. Hannu Tervo, 2004. "Self-employment dynamics in rural and urban labour markets," ERSA conference papers ersa04p396, European Regional Science Association.
    6. Fatma El-Hamidi, 2011. "How Do Women Entrepreneurs Perform? Empirical Evidence from Egypt," Working Papers 23, AlmaLaurea Inter-University Consortium.
    7. Panu Poutvaara & Juha Tuomala, 2004. "What is Left to Residual Claimants? The Empirics of Income Reported by Entrepreneurs and Workers," Labor and Demography 0406001, EconWPA.
    8. Maliranta, Mika & Nurmi, Satu, 2004. "Analyzing Entrepreneurship with the Finnish Linked Employer-Employee Data (FLEED).Matching and qualitative properties of the data," Discussion Papers 920, The Research Institute of the Finnish Economy.
    9. Yoon Lee & Cynthia Jasper & Margaret Fitzgerald, 2010. "Gender Differences in Perceived Business Success and Profit Growth Among Family Business Managers," Journal of Family and Economic Issues, Springer, vol. 31(4), pages 458-474, December.
    10. José Millán & Emilio Congregado & Concepción Román, 2012. "Determinants of self-employment survival in Europe," Small Business Economics, Springer, vol. 38(2), pages 231-258, February.
    11. Zoltan J. Acs & Catherine Armington, 2004. "New Firm Survival and Human Capital," Papers on Entrepreneurship, Growth and Public Policy 2004-14, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    12. Aparna Mathur, 2010. "Health insurance and job creation by the self-employed," Small Business Economics, Springer, vol. 35(3), pages 299-317, October.
    13. Kim, Y. & Gao, F.Y., 2013. "Does family involvement increase business performance? Family-longevity goals’ moderating role in Chinese family firms," Journal of Business Research, Elsevier, vol. 66(2), pages 265-274.
    14. Maliranta, Mika & Nurmi, Satu, 2004. "Do Foreign Players Change the Nature of the Game Among Local Entrepreneurs?," Discussion Papers 942, The Research Institute of the Finnish Economy.
    15. Simon Parker & David Storey & Arjen Witteloostuijn, 2010. "What happens to gazelles? The importance of dynamic management strategy," Small Business Economics, Springer, vol. 35(2), pages 203-226, September.
    16. Anu Tokila & Hannu Tervo, 2011. "Regional differences in returns to education for entrepreneurs versus wage earners," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 47(3), pages 689-710, December.

    More about this item


    Education; self-employment; firm growth; exit; selectivity;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I29 - Health, Education, and Welfare - - Education - - - Other

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