Entrepreneurship, Human Capital, and Labor Demand: A Story of Signaling and Matching
46 Pages Posted: 22 Aug 2015
Date Written: July 31, 2015
Contrary to employees, there is no clear evidence that entrepreneurs’ education positively effects income. In this study we propose that entrepreneurs can benefit from their education as a signal during the recruitment process of employees. This process is then assumed to follow a matching of equals among equals. Using rich data from Germany and Denmark we fully confirm a matching on qualification levels for high-skilled employees, partially for medium-skilled employees but not for low-skilled employees, suggesting that as skill levels of employees decrease it becomes equally probable that they work for different founders. Founder qualification is the most reliable predictor of recruitment choices over time. Our findings are robust to numerous control variables as well as across industries and firm age.
Keywords: returns to education, labor demand of small firms, human capital, matching, signaling
JEL Classification: J23, J24, J21
Suggested Citation: Suggested Citation