Fewer and Less Skilled? Human Capital, Competition, and Entrepreneurial Success in Manufacturing

Abstract

We use micro data on skills to analyze the human capital of entrepreneurial and incumbent plants in U.S. manufacturing over 2005-2013. We find a large drop in cognitive skills in entrepreneurial plants. This has long-term implications since initial cognitive skills at the plant level predict future skills and growth rates. The gap between entrant and incumbent skills increases with exposure to Chinese imports, with entrants' skills falling and those of incumbents increasing. Import competition explains between 17%-60% of the skill differential between entrants and incumbents. While high skilled incumbents grow faster than low skilled establishments in exposed industries, the evidence for entrants is weaker. Overall, we find that entrepreneurial firms and incumbents are acquiring different skill sets, leaving entrants more exposed to the risk of automation or offshoring.

Keywords: Entrepreneurship, Human Capital, Skills, Competitive Shock, Firm Entry

JEL Classification: F61, G39, J24, L25, L1, L26