Financial Capital, Human Capital, and the Transition to Self‐Employment: Evidence from Intergenerational Links

TLDR

The study investigates how family financial and human capital influence individuals’ transition into self‑employment using National Longitudinal Survey data. It estimates the effects of an individual’s own wealth and human capital, as well as parental wealth and self‑employment experience, on the likelihood of moving from wage‑and‑salary employment to self‑employment. Results show that while young men’s own financial assets have a modest but significant impact, parents’ capital—especially their self‑employment experience and business success—has a much larger influence on the transition.

Abstract

We use data from the National Longitudinal Surveys to investigate the relative importance of family financial and human capital in the transition into self‐employment. Specifically, we estimate the impacts of individual's own wealth and human capital and parental wealth and self‐employment experience on the probability that an individual transits from wage‐and-salary to self‐employment. We find young men's own financial assets exert a statistically significant but quantitatively modest effect on the transition. In contrast, parents' capital exerts a large influence. Parents' strongest effect runs, not through financial means, but rather through their own self‐employment experience and business success.