chapter 7 Inferring the Unobserved Human Capital of Entrepreneurs
Abstract
The goal of the paper by Bhattacharjee et al. is to study the role of labour
market characteristics in entrepreneurial choice and its impact on the survival
of newly created firms. Their starting point is that, when starting a new
business, an entrepreneur's labor market situation (e.g. employed or not –and
whether or not in the preferred sector-) reflects how his human capital may
be valuated through salaried labor, the alternative for entrepreneurship.
Hence, Bhattacharjee and coauthors view the labor market situation preceding
entrepreneurship as an indicator of the amount of unobserved human capital
people have. More in particular, when an individual sets up a firm in the same
sector of experience, this may indicate a high average level of unobserved
human capital due to a lack of depreciation motive. The authors test the
hypothesis that an individual's previous labor market situation affects the
predictive value of observed human capital for surviving as an entrepreneur.
The results show that the impact of education on the new firm's survival is
indeed most pronounced for firms created by individuals salaried in their
preferred branch of activity while it is rather limited for other entrepreneurs.
market characteristics in entrepreneurial choice and its impact on the survival
of newly created firms. Their starting point is that, when starting a new
business, an entrepreneur's labor market situation (e.g. employed or not –and
whether or not in the preferred sector-) reflects how his human capital may
be valuated through salaried labor, the alternative for entrepreneurship.
Hence, Bhattacharjee and coauthors view the labor market situation preceding
entrepreneurship as an indicator of the amount of unobserved human capital
people have. More in particular, when an individual sets up a firm in the same
sector of experience, this may indicate a high average level of unobserved
human capital due to a lack of depreciation motive. The authors test the
hypothesis that an individual's previous labor market situation affects the
predictive value of observed human capital for surviving as an entrepreneur.
The results show that the impact of education on the new firm's survival is
indeed most pronounced for firms created by individuals salaried in their
preferred branch of activity while it is rather limited for other entrepreneurs.