Job Creation by the Self-employed: The Roles of Entrepreneurial and Financial Capital

The paper reports micro-econometric evidence on the factors that influence the ability of the small businesses to create employment. It uses data on self-employment from a British panel survey. In particular it investigates the contributions of financial and entrepreneurial capital to job creation. Housing wealth appears to be significantly associated with small business job creation. It appears to act as an important source of financial collateral. The parental background of the small business owner is also significantly associated with job creation. Successful entrepreneurs are more likely to have had self-employed parents, and in particular parents who employed others. Educational attainment, in particular at degree level, is also important. The preferred model incorporates individual random effects and the significance of these suggests the importance of unobserved latent entrepreneurial ability. The British Household Panel Survey data used in this paper were made available through the ESRC Data Archive. The data were originally collected by the ESRC Institute for Social and Economic Research at the University of Essex. Neither the original collector of the data nor the Archive bears any responsibility for the analyses or interpretations presented here. I am grateful to Reza Arabsheibani for helpful comments at a preliminary stage, and to seminar participants at the Welsh Assembly Government, Cardiff.