Under Review/Working Papers
The Illegitimacy Premium: The effect of entrepreneurship on the future employment. Evidence from an Audit Study.
R&R at Organization Science
Kacperczyk, A; Younkin P
fist version presented as in Feb 2018 under the tile" Don't Do It: The employment prospects of entrepreneurs"
link to the presentation
Also presented at EGOS July 2018, Doriot Entrepreneurship Conference (INSEAD) September 2018; Economic Sociology Conference, September 2019; Lugano Conference, July 2019
Entrepreneurship has long been characterized as an important social product. It is described as a driver of innovation, a creator of jobs, a means for social mobility, and to reduce inequality. As a result, national policies seek to foment entrepreneurship, regions compete to entice entrepreneurs, and universities increasingly act to develop them. Lost in all this optimism is the fact that most entrepreneurs will fail and will then need to reenter the labor market. While the pursuit of entrepreneurship may yield a broad public benefit, the true costs to the individual remain less obvious. At the broadest level, we lack empirical evidence of how founding a company affects future employment opportunities. More specifically, we ask whether the meaning of entrepreneurship, or what employers infer from this signal, varies with the gender of the founder. Using a large-scale audit design we investigate the effect of entrepreneurship on the likelihood of future employment for men and women across 12 cities in the United States. Our findings indicate that there is a significant penalty to pursuing entrepreneurship but that this penalty is attenuated for women. In a subsequent survey of HR executives, we provide evidence that the interpretation of entrepreneurship varies by gender in a way that generates two distinct penalties for men and for women.
Minority Entrepreneurship and Opportunities within Established Firms
R&R at Organization Science
(with Tiantian Yang)
Extending research on racial inequality from wage employment to entrepreneurship, this study documents how persistent barriers to minority founders lead to their adaptive behaviors and enhanced aspirations in pursuing startup opportunities. In particular, we argue that discrimination against black founders and the resulted lower chances of success in founding a new business will raise the relative appeal of alternative opportunities for blacks, compelling them to pursue entrepreneurial routes that increase their access to resources and minimize discrimination. Analyzing a longitudinal dataset that tracks a representative sample of American entrepreneurs for six years, we found supportive evidence that Blacks, relative to Whites, are more likely to seek startup opportunities within their employer organization than founding a new business on their own. Blacks’ tendency to favor internal routes is more amplified in states with stronger discrimination or fewer entrepreneurial opportunities. Probing into the mechanisms, we found that blacks pursuing internal route of entrepreneurship have higher growth aspirations and make more attempts at seeking resources, suggesting that these disadvantaged individuals perceive internal startup opportunities as more resource abundant and more financially promising. Together these results provide novel evidence on the supply-side mechanisms that affect racial minorities’ pursuit of entrepreneurship, bringing to light a new set of phenomena for investigation by race and entrepreneurship scholars.
Discrimination and Entrepreneurship
with Giovanni Valentini and Raffaele Conti (authors listed alphabetically) (revise and resubmit)
R&R at Organization Science
This study revisits the well-established claim that institutions sanctioning discrimination spur entrepreneurial entry. We propose that the effect of such institutions on entrepreneurship depends crucially on whether discrimination originates on the demand or the supply side of the entrepreneurial process. The benefits of antidiscrimination institutions in the context of entry are usually based on the study of demand-side discrimination, or bias that arises when prospective entrepreneurs face discrimination by key resource providers for a new venture (i.e., investors, banks, prospective employers). We hypothesize the opposite effect on the supply side, or when prospective entrepreneurs face discrimination in paid employment. Using evidence from the enactment of LGBT employment antidiscrimination laws, we show that laws to reduce employer discrimination deter entry into entrepreneurship because they increase the appeal of paid employment relative to entrepreneurship. Despite the reduction in the rates of entrepreneurship, however, new ventures’ growth orientation increases because antidiscrimination institutions motivate the pursuit of higher-potential opportunities.
Wage Inequality and Entrepreneurship: The Indirect Effect of Incumbents
with Francesco Castellaneta and Raffaele Conti (authors listed alphabetically)
Using an exogenous variation in threat of startup entry, we develop and test a theory of wage inequality in regions with lower barriers to entry and therefore higher levels of entrepreneurship. Researchers have argued that startup entry increases inequality of pay in a labor market because new ventures lead to higher pay dispersion between and within startup firms. We propose an alternative explanation for the relationship between startup entry and wage inequality: increases in pay dispersion within incumbent firms. Wage inequality increases following startup entry because incumbents respond to threats imposed by startups in the local market by reallocating rents among their own workers. We exploit a natural experiment provided by an entry deregulation reform in Portugal, and its effect on wage inequality in those municipalities where it was enacted. Using a difference-in-differences methodology we find that, following the entry deregulation reform, wage inequality significantly increased. We further show that startups’ entry leads incumbents to reallocate rents from bottom-level workers to top-level workers. This Matthew effect, whereby “rich get richer” and “poor get poorer,” contributes to higher variance in pay within a labor market. Finally, our findings indicate that earnings within incumbents account for a larger share of the increase in income inequality than do earnings within startups.
After the End: Entrepreneurship as a Step on a Career Path
with Mathew Bidwell and Ethan Mollick
(draft available upon request)
Entrepreneurship scholars have commonly focused on antecedents of entrepreneurial entry while paying much less attention to the consequences of entrepreneurial experience. We examine the returns to entrepreneurship, by assessing the earnings ex-founders receive when they re-enter paid employment. Building on the mobility perspective to entrepreneurship, we conceptualize moves from entrepreneurship back to paid employment as career shifts. Casting re-entry into paid employment as a career move, we propose that – like other career moves – entrepreneurship will yield higher returns when experience and skills gained during entrepreneurial spell are closely matched with employer demands. Using the survey-based, career-history data collected on a large sample of alumni of a North American University, we find support for our claims among ex-entrepreneurs who re-enter paid employment. First, we demonstrate that, upon returning to paid employment, ex-founders are more likely than other movers to switch to positions that match entrepreneurial experience: they switch to (a) jobs with more generalist skills; (b) positions of higher-ranked and greater responsibility; and (c) smaller-size employers. Moreover, we find that these career switches are associated with higher payoffs for ex-founders in paid employment. Finally, consistent with skill acquisition, our study offers some evidence that the benefits of finding a match in paid employment are higher for ex-founders whose ventures were successful and reduced for ex-founders whose ventures failed. Our study thus contributes to the entrepreneurship and career studies by developing and evaluating a matching theory of payoffs to entrepreneurship.
The Advantages of Complete Performance Feedback: Evidence from Private Equity Backed Buyouts
with F. Castellaneta, Gottschlag, O., and Wright, M.
The Extra-Organizational Determinants of Innovation: Sunshine and Inventors' Performance
(with Chen, Y., Hsu, P-H., Podolski, E., Veeraraghavan, M.)
We propose that extra-organizational factors such as exposure to sunshine are an important driver of innovators’ performance. Prior research highlights the critical role non-pecuniary factors play in influencing inventors’ productivity, yet most of these studies focus on organizational and job attributes and the resulting job satisfaction. We argue, by contrast, that, by triggering positive affective states, sunshine exposure enhances creativity, leading to greater quantity and quality of innovative output. We test our hypotheses using information on every patent granted by the U.S. Patent and Trademark Office from 1976 to 2010, together with information on the sunshine exposure for each inventor. We find evidence suggesting that relative sunshine exposure results in more patents and patents of higher quality. Our results further suggest that greater sunshine exposure leads to patents that are more original, and that build on non-local knowledge and newly-developed technologies. Alternative explanations related to geographical heterogeneity, managerial decisions, migration, and time allocation are not supported. Improved creativity and initiative at work are identified as the mechanisms through extra-organization factors (i.e., sunshine) that stimulate inventor performance. We present novel evidence on the non-pecuniary determinants of inventor productivity and the real effects of positive affect on economies.
Female Entrepreneurship and Alternative Career Routes Inside an Organization