Transition to Entrepreneurship from the Public Sector: Predispositional and Contextual Effects

Abstract

Studies of career dynamics implicitly claim that government employees are not entrepreneurial. Utilizing longitudinal data from the U.S. Panel Study for Income Dynamics, we investigate the reasons for the low rate of entrepreneurship from the public sector. We conjecture that it is due to labor market matching processes and the bureaucratic nature of public organizations and bureaucratization of individuals. Our life-course analysis identifies labor market matching as a major determinant: nonentrepreneurial types choose public sector employment. We also uncover tenure and context effects, which decrease and increase the hazard rate of entrepreneurial exit, respectively. Whereas the former effect points toward adaptation and internal labor market sorting, the latter draws attention to exits due to frustration.