Does Career Risk Deter Potential Entrepreneurs?

Abstract

Do potential entrepreneurs remain in wage employment because of concerns that they will face worse job opportunities should their entrepreneurial ventures fail? Using a Canadian reform that extended job-protected leave to one year for women giving birth after a cutoff date, we study whether the option to return to a previous job increases entrepreneurship. A regression discontinuity design reveals that longer job-protected leave increases entrepreneurship by 1.9 percentage points. These entrepreneurs start incorporated businesses that hire employees—in industries where experimentation before entry has low costs and high benefits.

Keywords: Entrepreneurship, Risk-Aversion, Job-Protected Leave, Career, Real Option, Experimentation

JEL Classification: L26, J13, J16, J65, J88, H50