CEF.UP – ECO Seminar

Tuesday – March 25^th 2025, at 13:00h | Room 305

The Role of Human Capital Specificity in Entrepreneurship

Attila Gyetvai – Banco de Portugal 

Abstract:

“We argue that human capital specificity—the extent to which entrepreneurial human capital can be transferred to wage employment—is the key driver of entrepreneurial entry and exit. We provide evidence of this channel, combining data on the universe of Portuguese entrepreneurs and workers with a quantitative structural model. Our reduced-form analysis introduces a difference-in-differences approach that compares entrepreneurs who return to wage employment relative to those who never entered entrepreneurship. We find that individuals starting from lower relative wage trajectories benefit from entrepreneurship due to partial transferability, seeing average wage gains of 7.7 percent. However, individuals starting from higher relative wage trajectories are negatively impacted by partial transferability, and see average losses of 6.1 percent. We incorporate this evidence into a macroeconomic model of endogenous entrepreneurship with borrowing constraints and partially transferable human capital from entrepreneurship to wage employment. We find that borrowing constraints do not meaningfully impact entrepreneurial entry in this environment. Low-type entrepreneurs, with low optimal scale, enter entrepreneurship regardless of financial constraints due to the value of improving labor market outcomes via entrepreneurship. High-type entrepreneurs delay entry due to the risk of losing human capital, rather than inability to achieve their optimal scale. We conclude that policies which mitigate losses to human capital are more effective in spurring entry of high-type entrepreneurship.”