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Session Overview
FL-1: Entrepreneurship and Human Capital Risk
Friday, 25/Aug/2017:
1:30pm - 3:00pm

Session Chair: Margarita Tsoutsoura, University of Chicago
Location: O151

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Angels, Entrepreneurship, and Employment Dynamics: Evidence from Investor Accreditation Rules

Laura A. Lindsey, Luke Stein

Arizona State University

Discussant: Jessica S. Jeffers (University of Chicago)

This paper examines the effect of a shock to angel finance on entrepreneurial activity and employment. Using public micro data from the U.S.Census, we construct a state-level estimate of the fraction of accredited investors likely affected by Dodd-Frank's elimination of housing wealth in the determination of accreditation status. We demonstrate that larger reductions in the pool of potential angels negatively affects firm entry and reduces employment levels at small entrants. Employment increases at small and young incumbents as workers are absorbed, and wages for the startup sector decline. Angel finance appears to be a complement to organized venture capital and is more important in lower startup-capital-intensive industries. Our paper quantifies the impact of angel finance at the margin and offers insight on the geographies and sectors where it matters most.

EFA2017-837-FL-1-Lindsey-Angels, Entrepreneurship, and Employment Dynamics.pdf

Finding Success in Tragedy: Forced Entrepreneurs after Corporate Bankruptcy

Kristoph Kleiner, Isaac Hacamo

Indiana University

Discussant: Murat Tasci (Federal Reserve Bank of Cleveland)

Using linked employer-employee data collected from resumes, we establish a positive externality of corporate bankruptcy. We find that bankruptcy-related unemployment increases entrepreneurship rates nearly five-fold relative to pre-bankruptcy. This effect is three times larger for workers with occupations in management and finance. Remarkably, 30% of the new firms hire multiple employees. We employ a baseline identification based on double matching firms and workers, and an alternative strategy based on random assignment of bankruptcy judges. Five years after a bankruptcy filing, the forced entrepreneurship channel counteracts roughly 5% of the total employment loss from bankruptcy.

EFA2017-1327-FL-1-Kleiner-Finding Success in Tragedy.pdf

Private Equity and Human Capital Risk

Manfred Antoni1, Ernst Maug2, Stefan Obernberger3

1Institute for Employment Research; 2University of Mannheim; 3Erasmus University Rotterdam

Discussant: Joacim Tåg (Research Institute of Industrial Economics (IFN))

We study the impact of leveraged buyouts in Germany on employees' wages, employment, and their career paths, and contrast the modernization view with the breach-of-trust view. We match employee-level data of more than 147,000 LBO employees to a carefully matched control group and conduct matched-sample difference-in-differences estimations. LBOs increase income in the event year and the subsequent year, but reduce income by about 11% in the long term. We reject the breach-of-trust argument, which holds that LBOs transfer wealth from employees to investors. We find no support for standard versions of the modernization argument, which see LBOs as transmitting general trends in the labor market. In particular, LBOs do not foster forms of technological change that harm employees with routine jobs, a low or medium-level education, or simply employees with lower earnings. Instead, we find a strong negative impact of LBOs for older employees and those with more specific human capital.

EFA2017-1168-FL-1-Antoni-Private Equity and Human Capital Risk.pdf

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