How much is entrepreneurship predetermined by family background? According to a new study,
recent papers have collectively suggested that entrepreneurship might be more predetermined than previously thought – entrepreneurship education has been proven to be effective in primary school (Huber et al 2014) and, to a lesser extent, in secondary school (Elert et al 2015), but not at all when individuals are older, that is, students (Oosterbeek et al 2010) or adults (Fairlie et al 2015). Moreover, strong intergenerational associations in entrepreneurship have attracted considerable attention. While part of this relationship has been shown to be genetic (Nicolaou et al 2008), parental role-modelling appears to be the main driver of the intergenerational association in entrepreneurship (Lindquist et al. 2015). Additionally, exposure to a dense entrepreneurial environment during formative years also increases the likelihood of entry into entrepreneurship (Guiso et al. 2015).
So the policy-relevant questions arise: To what extent is entrepreneurship predetermined? Have we spent (public) funds wisely by implementing policy measures and education aimed at changing the behaviour of adult people?
In a recent paper, we assess the predetermination of entrepreneurship outcomes by calculating and analysing sibling correlations (Lindquist et al 2016). We argue that sibling correlations are more complete and precise measures of predetermination, including the importance of genes, family background, and neighbourhood effects as determinants of entrepreneurship. Sibling correlations have been used before to study outcomes other than entrepreneurship and provide much broader measures of the importance of family background and neighbourhood effects than intergenerational associations (Solon 1999). Their interpretation is also straightforward – the higher the sibling correlation, the larger the importance of family background.
- 25% of the variance in individuals’ decisions to become self-employed is explained by family background and community influences;
- For incorporation, this is close to 35%;
- These percentages are slightly higher when we consider measures of successful entrepreneurship such as above median years of self-employment and incorporation;
- Brother correlations are always larger than sister correlations;
- The largest correlation is for males with above median years of incorporation, which is close to 50%;
- Mixed sibling correlations are consistently smaller than same-sex correlations.
- Parental entrepreneurship status is quite important;
- Parental education and income matter much less; and,
- Family structure and immigrant status do not matter.
- Parental self-employment is a prime explanatory force in individual self-employment, but not incorporation; and
- Parental incorporation explains individual incorporation best, but not self-employment.
- Between 56–78% of the sibling correlations in self-employment; and
- Between 38–46% of the sibling correlations in incorporation.
The researchers conclude “that parental entrepreneurship and genes are the two most important factors generating sibling similarities in entrepreneurship.” Policy wise, the authors explain that “children appear to be able to learn about entrepreneurship through their family and community environment, which implies that it may be possible to teach entrepreneurship to young people.”