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Small Training Firms: A Breeding Ground for Self-Employment?

Abstract

This study looks at the factors that can encourage the decision to take up self-employment and concentrates on the question of what role vocational training and the characteristics of the training firm play. The bivariate and multivariate statistical analyses are based on broad, representative cross-sectional surveys of economically active persons (BIBB/IAB samples). The respondents were asked retrospectively about segments of their work history. A central finding of our study is the influence of training firm size-even when controlling for additional factors. Those who completed their training in a small firm are more likely to choose self-employment than those trained in large firms. Among other things, we attribute this to some peculiarities of small firms and the knowledge they impart. We provide indirect evidence that the link between the size of training firm and choosing self-employment is mediated by different career prospects and costs of mobility associated with training in firms of different size. Skills gained in a small training firm are much more applicable to self-employment.
... One key implication is the reduced opportunities available for accumulating human, social, and financial resources conducive to venture creation. Public sector organizations are known for their high degree of bureaucracy, formalization, and hierarchy, which tend to be manifest in highly specialized jobs characterized by a narrow range of responsibilities (Strohmeyer and Leicht, 2000;Sørensen, 2007). As such, employees in such organizations are less likely to be exposed to opportunities for developing the generalist knowledge and skills that research has shown to be characteristic of entrepreneurs (Lazear, 2005). ...
... Public sector employees are also less likely than those in the private sector to experience working conditions typical of a business founder. For one, given that monitoring and control are hallmarks of the highly bureaucratic organizations that the public sector comprises (Strohmeyer and Leicht, 2000;Sørensen, 2007), employees in such settings are unlikely to experience the high level of job autonomy that we suggest is conducive to perceptions of how easy it would be to start a business. Moreover, because public sector employees are less likely to be involved in the conception and launch of new products, services, or processes than those employed in private firms (Parker, 2009), they are less likely to have the intrapreneurship experience that arguably makes the idea of starting a business seem less challenging. ...
... Shane and Venkataraman, 2000;McMullen and Shepherd, 2006). Our arguments here rest on the premise that individuals tend to launch firms in industries in which they have prior experience because of enhanced understanding of how to meet demands in a specific opportunity space and/or the desire to decrease switching costs by increasing the transferability of their industry-specific knowledge, skills, and networks (e.g., Strohmeyer and Leicht, 2000;Parker, 2009). The public sector is likely to be perceived as less conducive to new venture creation than the private sector for three key reasons: a lower level of existing new/small business activity, a lower level of dynamism, and a lower level of innovation. ...
... One key implication is the reduced opportunities available for accumulating human, social, and financial resources conducive to venture creation. Public sector organizations are known for their high degree of bureaucracy, formalization, and hierarchy, which tend to be manifest in highly specialized jobs characterized by a narrow range of responsibilities (Strohmeyer and Leicht, 2000;Sørensen, 2007). As such, employees in such organizations are less likely to be exposed to opportunities for developing the generalist knowledge and skills that research has shown to be characteristic of entrepreneurs (Lazear, 2005). ...
... Public sector employees are also less likely than those in the private sector to experience working conditions typical of a business founder. For one, given that monitoring and control are hallmarks of the highly bureaucratic organizations that the public sector comprises (Strohmeyer and Leicht, 2000;Sørensen, 2007), employees in such settings are unlikely to experience the high level of job autonomy that we suggest is conducive to perceptions of how easy it would be to start a business. Moreover, because public sector employees are less likely to be involved in the conception and launch of new products, services, or processes than those employed in private firms (Parker, 2009), they are less likely to have the intrapreneurship experience that arguably makes the idea of starting a business seem less challenging. ...
... Shane and Venkataraman, 2000;McMullen and Shepherd, 2006). Our arguments here rest on the premise that individuals tend to launch firms in industries in which they have prior experience because of enhanced understanding of how to meet demands in a specific opportunity space and/or the desire to decrease switching costs by increasing the transferability of their industry-specific knowledge, skills, and networks (e.g., Strohmeyer and Leicht, 2000;Parker, 2009). The public sector is likely to be perceived as less conducive to new venture creation than the private sector for three key reasons: a lower level of existing new/small business activity, a lower level of dynamism, and a lower level of innovation. ...
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Although scholars have long recognized the consequences of sex-based labor market segregation for gendered outcomes in conventional wage-and-salary employment, comparatively little is known about the implications for entrepreneurship. We call attention to implications stemming from manifestations at distinct levels of analysis, specifically to the differential structural positions that men and women are likely to occupy as employees and to the degree of sex-based labor market segregation in a country overall. We hypothesize that the gendering of labor market positions will have the first-order effect of reducing women’s likelihood of acquiring entrepreneurship-relevant resources, experiencing entrepreneurial career previews, and being exposed to industry opportunity spaces for launching new firms, which will have the second-order effect of lowering their start-up ease perceptions relative to men’s. We further suggest that this gender gap will widen in societies with more highly sex-segregated labor markets. Data from 15,742 employees in 22 European countries provide strong support for these claims. By demonstrating how pre-entry assessments of entrepreneurship are influenced by gendered employment experiences at the individual level and gendered labor market regimes at the country level, this study lays a foundation for further multilevel research on the relationship between institutionalized labor market practices and entrepreneurial activity. Open access until 4.April at SAGE: https://journals.sagepub.com/doi/full/10.1177/0001839219835867
... For many employees in a small firm, imitating observed role models is likely to be one of the crucial factors in support of the aspiration to attempt to manage one's own enterprise (see e.g. Strohmeyer &Leicht 2001 andWagner 2003). On the other hand, working in large hierarchical organizations (such as public sector) characterized by a high degree of bureaucratization and formalization, where the probability of gaining knowledge and key qualifications required for self-employment is very low, may contribute less to learning and imitating of entrepreneurial behavior, decreasing one's likelihood of becoming self-employed. ...
... Therefore, it can be argued that employees in the public sector will be able to find their way to self-employment only via "re-orientation" or "starting over." However, this will be associated with a loss of human capital and high occupational mobility costs and, as a consequence, high "switching costs" (see Strohmeyer & Leicht 2001). ...
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There are two phenomena in the field of female entrepreneurship that have not yet been adequately explained by previous research, namely (first) the “gender gap” in self-employment and (second) gender-specific occupational and industrial segregation, also in self-employment. The “gender gap” in self-employment refers to the phenomenon that despite increasing absolute numbers of self-employed women in most of the welfare states of Western Europe and North America, the women’s self-employment ratio, referring to the ratio of self-employed women among all working women, remains roughly half that of men’s self-employment ratio (Arum and Müller 2004, Leicht and Strohmeyer 2005). This also holds true for Germany, where the chances to become self-employed are roughly twice as low for women than for men: after all, women comprise only 28% of all self-employed in Germany (Wagner 2005, Lauxen-Ulbrich and Leicht 2002). This arises the question why women are significantly less likely to become entrepreneurs than men. Research speaks of gender-based occupational segregation (or occupational sex segregation), when occupations exist in which the share of workers of one sex is so high that they could be called either “male” or “female” occupations (Jonung 1996, Melkas and Anker 1997). Research argues that the tendency for women in dependent employment to enroll in “sex-typical occupations” is also true for self-employment. Confirming the results obtained for United Kingdom (Hakim 1998), a German study (Lauxen-Ulbrich and Leicht 2002: 49-53) and an Israeli (Kraus 2003:6-7) study show that the most common occupations for selfemployed women still refer to jobs that are person- and service-oriented and are performed either in female-dominated occupations (typically “female jobs” include nurses, salespersons, hairdressers, beauticians, doctor's receptionist etc.) or integrated occupations (lawyers, consultants, economists, etc.). Instead, only a very small proportion of self-employed women (e.g. in Germany every fifth self-employed female, in Israel every tenth self-employed female) perform in male-dominated occupations, which mainly refer to traditional professions, craftsmen, as well as technicians and engineers...
... This is because especially these sectors includes large, bureaucratic and hierarchical organizations with a pronounced division of labor. Skill variety is rather acquired in small firms [31,101], where there are less predefined job descriptions and therefore less division of labor [102,103]. ...
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Given that skill variety is widely regarded a key component of entrepreneurial human capital, gender differences in entrepreneurship could be rooted in the formation of such skill variety. Analyzing 12-year longitudinal data following 1,321 Finnish adolescents into adulthood, we study whether gender differences in skill variety open up early in the vocational development of entrepreneurs vs. non-entrepreneurs, thereby contributing to the persisting gender gap in entrepreneurship in adulthood. Specifically, structural equation modeling was used to test and compare the mediating effect of early skill variety in adolescence vs. education- and work-related skill variety in early adulthood on the gender gap in entrepreneurial intentions in adulthood. We find that education- and work-related skill variety indeed operate as an obstacle for women entrepreneurship, despite women outperforming men in early skill variety in adolescence. Hence, we identify a critical turning point in early adulthood where women fall behind in their development of entrepreneurial human capital.
... Similarly, Strohmeyer and Leicht (2000) argue that small firms are breeding grounds for employee entrepreneurship because employees are able to gain entrepreneurial know-how from close contacts, daily exchanges, and observations of managerial behaviors and functions. ...
... Strohmeyer and Leicht (2000) show that those who completed their vocational training in a small firm are more likely to become self-employed than those trained in large firms. ...
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In western industrialized countries men are on average more than twice as active in entrepreneurship as women. Based on data from a recent representative survey of the adult population in Germany this paper uses an empirical model for the decision to become self-employed to test for differences between women and men in the ceteris paribus impact of several characteristics and attitudes, taking the rare events nature of becoming an entrepreneur into account. Furthermore, a non-parametric approach using Mahalanobis- distance matching of man and woman which are as similar as possible in all characteristics and attitudes but the “small difference” is used to investigate the difference in the propensity to become self-employed by sex. A core finding is that the difference between men and women in both the extent and the effect of considering fear of failure to be a reason not to start one’s own business is important for the explanation of the gap in entrepreneurship by sex. Copyright Springer 2007
Technical Report
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Studie im Auftrag des Bundesministeriums für Wirtschaft und Energie (BMWi) Autoren, ifm Universität Mannheim: René Leicht Stefan Berwing Ralf Philipp Nora Block Niclas Rüffer Jan-Philipp Ahrens Co-Autoren, ism Mainz: Nadine Förster Ralf Sänger Julia Siebert
Thesis
Why do some people become entrepreneurs while others stay in paid employment? Searching for a distinctive set of entrepreneurial skills that matches the profile of the entrepreneurial task, Lazear introduced a theoretical model featuring skill variety for entrepreneurs. He argues that because entrepreneurs perform many different tasks, they should be multi-skilled in various areas. First, this dissertation provides the reader with an overview of previous relevant research results on skill variety with regard to entrepreneurship. The majority of the studies discussed focus on the effects of skill variety. Most studies come to the conclusion that skill variety mainly affects the decision to become self-employed. Skill variety also favors entrepreneurial intentions. Less clear are the results with regard to the influence of skill variety on the entrepreneurial success. Measured on the basis of income and survival of the company, a negative or U-shaped correlation is shown. Within the empirical part of this dissertation three research goals are tackled. First, this dissertation investigates whether a variety of early interests and activities in adolescence predicts subsequent variety in skills and knowledge. Second, the determinants of skill variety and variety of early interests and activities are investigated. Third, skill variety is tested as a mediator of the gender gap in entrepreneurial intentions. This dissertation employs structural equation modeling (SEM) using longitudinal data collected over ten years from Finnish secondary school students aged 16 to 26. As indicator for skill variety the number of functional areas in which the participant had prior educational or work experience is used. The results of the study suggest that a variety of early interests and activities lead to skill variety, which in turn leads to entrepreneurial intentions. Furthermore, the study shows that an early variety is predicted by openness and an entrepreneurial personality profile. Skill variety is also encouraged by an entrepreneurial personality profile. From a gender perspective, there is indeed a gap in entrepreneurial intentions. While a positive correlation has been found between the early variety of subjects and being female, there are negative correlations between the other two variables, education and work related Skill variety, and being female. The negative effect of work-related skill variety is the strongest. The results of this dissertation are relevant for research, politics, educational institutions and special entrepreneurship education programs. The results are also important for self-employed parents that plan the succession of the family business. Educational programs promoting entrepreneurship can be optimized on the basis of the results of this dissertation by making the transmission of a variety of skills a central goal. A focus on teenagers could also increase the success as well as a preselection based on the personality profile of the participants. Regarding the gender gap, state policies should aim to provide women with more incentives to acquire skill variety. For this purpose, education programs can be tailored specifically to women and self-employment can be presented as an attractive alternative to dependent employment.
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In recent years, self-employment has risen in several Western countries including Switzerland. The controversial discussion of this rise is attributable to shortcomings of empirical research, namely, to the lack of systematically considering, both at the macro- and the micro-level, the push and pull factors that may account for entry into self-employment. Little is known about how macroeconomic forces together with individual-level push and pull factors shape transitions into self-employment. Even less is known about how these factors play out in occupationally segmented labour markets. This paper thus examines how the overall climate for setting up a business, individual job opportunities, and structural characteristics of labour-market positions affect transitions to self-employment in the occupationally segmented Swiss labour market. Based on two data sets, we run event history models. The Swiss Life History Study provides information on transitions into self-employment. With the Swiss Job Monitor, we construct indicators of the time-variant aggregate- and individual-level opportunities and incentives for setting up a business. Results indicate that moves into self-employment are affected both by macroeconomic conditions, individual job opportunities, and structural characteristics of the labour market position, whereby pull factors dominate at the macro level and the interplay of push and pull factors at the individual level.
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