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From employee to entrepreneur: Learning, employer size, and spinout dynamics

Faisal Sohail

Journal of Economic Dynamics and Control, 2021, vol. 133, issue C

Abstract: Most new firms are founded by former employees of existing firms – spinouts. This paper explores how existing firms shape the entry and post-entry dynamics of spinouts and studies the aggregate implications of this relationship. Using micro-data from Mexico, I show that employees from small firms are more likely to form spinouts than employees of large firms. In addition, spinouts from large employers start at a larger scale and grow faster than spinouts from small employers. To reconcile these patterns, I develop a model of occupational choice and firm dynamics in which employees can learn from their employers. Using a calibrated version of the model, I analyze the implications of the link between employer size and spinout dynamics for macroeconomic outcomes within and across economies. I argue that learning efficiency – interpreted as management quality – is not only salient for understanding cross-country differences in spinout entry but also variation in the firm size distribution and output per worker. I also show that employee learning has meaningful and long-lasting implications for the creation of new firms and for workers in response to policies that target existing firms. Taken together, this paper establishes a connection between incumbent and entrant firms and shows that it is important for aggregate outcomes.

Keywords: Spinouts; Learning; Occupational choice; Firm dynamics; Management practices (search for similar items in EconPapers)
JEL-codes: D83 J24 L25 O11 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jedc.2021.104270

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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