Fabiano Dal Ri

What Does it Take to Be a Business Owner? Evidence from Transitions from Job Loss

Abstract:  The existence of different trajectories to business ownership may confound the relationship between owners' skills and business outcomes. In particular, among previously employed owners, those who lost their jobs and those who quit comprise two distinct groups. Using a rich data set of business ownership in Brazil (including self-employed workers) matched with the universe of formal employment records, this paper first investigates business formation after job loss. By leveraging mass layoff events, I find a sharp increase in the number of business openings among laid-off workers, especially for high-ability workers with managerial experience. These managers appear to leverage their experience by starting longer-lasting ventures in industries where they worked before. I then show that businesses started after job loss are just as likely to survive as businesses created by workers who quit their jobs, where the relationship between managerial experience and survival is negative. My results highlight the importance of taking into account owners' trajectories and indicate a path for more effective business support policies.