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

Abstract

The factors that allow self-employed individuals to create small- to medium-size businesses that employ other individuals are examined.Factors considered include housing wealth (i.e., capital assets), parental background, educational level, local market conditions, and age of the self-employed. Using data collected from the British Household Panel Survey from 1991 to 1999, which encompasses approximately 5,000 households, the statistical analysis shows a strong correlation between housing wealth and employment generation.The housing wealth is often used as collateral to secure business financing.Further, the results indicate that entrepreneurs with a self-employed parent are more likely to employ others in their business.The greater the educational attainment, the more likely the self-employed are to employ others. Yet another finding is that at age 47.8, the self-employed are at the peak age for employment creation.These factors prove to be very important, as only one-third of the self-employed at any given time are able to create jobs for others.Furthermore, of those who are able to create jobs, only 6 to 7% are able to create jobs for ten or more people.Potential policy considerations are also discussed. (SRD)

Keywords: Experimental/primary research, British Household Panel Survey (BHPS), Human capital, Capital assets, Parents, Job creation, Self-employment, Firm growth