Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2018:38: Sorting on Unobserved Skills into New Firms

Polina Knutsson ()
Additional contact information
Polina Knutsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Human capital features prominently in theoretical work on post-entry performance of new firms. Empirical analysis has, however, to a large extent overlooked the unobserved component of human capital focusing on years of education or labor market experience. This paper adds to the literature on worker characteristics and post-entry firm performance by putting the unobserved quality of workers in the center of analysis. I find strong evidence that new firms on average employ workers of lower unobserved quality relative to incumbent firms. Among new firms workers of higher unobserved quality are overrepresented in spin-offs and incorporated new firms. I further show that unobserved quality of workers is important for the post-entry performance of firms as it is a strong predictor of new firm survival.

Keywords: Human capital; occupational choice; sorting; new firms

JEL-codes: J24; J60; M13

35 pages, November 29, 2018

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