Capital Market Constraints, Parental Wealth and the Transition to self‐Employment among Men and Women

Thomas Dun and Douglas Holtz-Eakin


The environment for business creation is central to economic policy as entrepreneurs are believed to be forces of innovation, employment and economic dynamism. We use data from the National Longitudinal Surveys (NLS) to investigate the relative impacts of parental wealth and human capital on the probability that an individual will make the transition from a wage and salary job to self-employment, and to examine differences between men and women in the determinants of self-employment.

We find that the financial assets of young men exert a statistically significant, but quantitatively modest effect on the probability of self-employment and the transition to self-employment. In contrast, financial assets are not a significant determinant of these activities for young women, casting doubt on the importance of capital market constraints for female entrepreneurs. For both males and females, parents exert a large influence. The channel for this effect runs not through financial means, but rather through intergenerational correlation in self-employment. Moreover, parents are not "created equal," the influence across generations is stronger along gender lines.