Hierarchies and entrepreneurship

Joacim Tåg, Thomas Åstebro*, Peter Thompson

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

14 Citations (Scopus)

Abstract

We establish a correlation between the hierarchical structure of a firm and the likelihood of business creation among its former employees, using a sample of 16 million observations of Swedish workers and a novel proxy for hierarchies based on occupation data. Conditional on firm size and many other variables, employees in firms with more layers are less likely to enter entrepreneurship, to become self-employed, and to switch to another employer. The effects of layers are much stronger for business creation than for job-switching and they are stronger for entrepreneurship than for self-employment. We discuss two potential explanations for the distinctive hierarchy effect we find. Part of the effect could be to be due to preference sorting by employees, and part due to employees in firms with fewer layers having a broader range of skills. One test showing that the probability of entrepreneurship increases with their prior rank in an organization is consistent with ability sorting and inconsistent with preference sorting.

Original languageEnglish
Peer-reviewed scientific journalEuropean Economic Review
Volume89
Pages (from-to)129-147
Number of pages19
ISSN0014-2921
DOIs
Publication statusPublished - 01.10.2016
Externally publishedYes
MoE publication typeA1 Journal article - refereed

Keywords

  • Employee mobility
  • Entrepreneurship
  • Hierarchy
  • Rank
  • Small firm effect

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