Essays on entrepreneurship and firm dynamics

Abstract

This thesis is composed of four essays; the first three chapters are related to entrepreneurship and business formation, while the last one to firm dynamics. In the first chapter, “The Role of Human Capital in Entrepreneurship: New Evidence from Danish Data”, joint work with Jacek Piosik, we provide new evidence on the role that human capital accumulation plays for selection into entrepreneurship. We build a new dataset based on Danish administrative data to study the characteristics of individuals who select into entrepreneurship and show that entrepreneurs, compared to workers of the same age, are positive selected along different measures of human capital. In the second chapter, “Entrepreneurship, Human Capital and Wealth”, I study how financial constraints and human capital accumulation interact in shaping entrepreneurial decisions. I propose a quantitative general equilibrium life-cycle model to analyze how human capital accumulation and financial constraints jointly determine i) the lifecycle patterns of entry into entrepreneurship ii) the productivity of businesses started at different stages of an individual’s life-cycle and how they interact in affecting aggregate TFP and resource mis-allocation. Through counterfactual exercises I establish how most efficiency losses due to the presence of financial frictions stem from the fact that high human capital entrepreneurs run undercapitalized businesses, rather than high human capital individuals not selecting into entrepreneurship. I conclude by using the calibrated model to quantify the efficiency and welfare effects of a tax policy reform aimed at incentivizing business creation by young individuals. In the third chapter, “Teach the Nerds to Make a Pitch: Multidimensional Skills and Selection into Entrepreneurship”, joint with Damiano Argan and Jacek Piosik, we ask how individuals’ skill set composition affects self-selection into entrepreneurship. Using Danish administrative data we document the existence of a positive complementarity between math and Danish language high school grades in predicting individuals’ self-selection into entrepreneurship. To casually estimate the effect of skill multidimensionality on the probability of becoming an entrepreneur we propose an identification startegy that uses information on parents’ human capital and exploits within-school, across-cohort variation in students’ exposure to peers whose father has a university degree in humanities. We find that the most treated individual (90th percentile) in our sample has 5.9% probability of becoming an entrepreneur compared to 4.8% of the least treated one (10th percentile), with a 1.1 percentage points difference. The effect is economically significant, being equal to 20% of the overall share of entrepreneurs in the economy. In the fourth chapter, “Covid and Productivity in Europe: A Responsiveness Perspective”, joint with Russell Cooper and Wolfram Horn, we study the effects of Covid-19 on manufacturing output, employment and productivity across a set of European countries. Using a quantitative firm dynamics model with endogenous entry and exit, key parameters of adjustment costs and market power are estimated to match countryspecific responsiveness of firms to exogenous shocks. The estimated model is used to simulate the effects of the Covid-19 shock, with and without policy measures. As seen through counterfactual exercises, the main impact of the policy interventions, treated as work-sharing schemes targeted to low profitability firms and “no-firing” obligations, was to mitigate the drop in aggregate employment by keeping firms in business. We do not find evidence of adverse productivity effects from these interventions.