Work in progress
Stairway to Heaven? Selection into Entrepreneurship and Income Mobility (with Jarkko Harju and Tuomas Matikka)
Abstract (updated December 2023):
Using detailed full-population data from Finland, we provide evidence on selection into entrepreneurship and the dynamic implications of establishing a new business. Individuals at the very top of the personal income distribution are much more likely to start a new incorporated business compared to others. There is no similar selection based on parental income, but more than half of new entrepreneurs have entrepreneurial parents. Entrepreneurship is associated with a similar average income gain of 20% relative to comparable wage earners throughout both personal and parental income distributions. However, key firm-level outcomes such as productivity and job creation are positively linked with personal income. This suggests that high-income individuals do not only benefit from entrepreneurship personally, but their businesses are associated with the largest positive spillovers in the economy. In contrast, we find no significant differences in the outcomes of new firms by parental income or parental background in entrepreneurship.
Head Start for Entrepreneurship: The Role of Socio-Economic Background (with Ross Levine)
Abstract (updated March 2024):
We explore the origins of the positive association between becoming an entrepreneur and socio-economic background, and whether parental resources contribute to entrepreneurial success. Using Finnish administrative data, we show that children from the top 1% of the parental income distribution are more than three times as likely to own shares in privately held corporations by age 34 than those from the bottom 80%. Children from affluent backgrounds typically acquire business ownership by establishing new businesses as non-majority owners or by joining existing businesses, which are often passed on by their parents. Their firms are older, larger, more profitable, and operate in distinct industries. They experience much faster income growth than salaried workers and entrepreneurs from lower down the parental income distribution, especially when earnings retained in their businesses are accounted for. Looking at a subset of entrepreneurs who found new businesses with no previous business ownership reveals that entrepreneurship is associated with faster income growth compared to a matched group of salaried workers in both tails of the parental income distribution. Businesses founded by children from prosperous origins have higher initial equity and profitability. Five years after establishment, these businesses are more profitable, even when adjusting for differences in industries and initial equity. We show that profitability and large personal gains associated with becoming an entrepreneur are accompanied by only modest positive spillovers through creation of jobs and value-added.
Are Firms Willing to Pay Lower Wages? A Quasi-Experiment on Subminimum Wage Policy (with Petri Böckerman, Henri Keränen and Tuomas Kosonen)
Abstract (updated March 2024):
We analyze a large-scale subminimum wage policy experiment that allowed firms to pay subminimum wages to newly hired workers younger than 25 years of age in the Finnish retail trade from 1993 to 1998. This setting enables a quasi-experimental analysis by comparing the wages of new hires in retail trade with those in other similar industries. We utilize rich linked employer-employee data containing individual-level hourly wages. We find that the uptake of the policy was remarkably limited; most firms hired eligible workers at the standard rather than the subminimum wage. This observation is striking, given that the policy experiment was implemented during a major economic recession with high youth unemployment. We explore mechanisms explaining the low uptake of the subminimum wage and find suggestive evidence that fairness considerations, leading to additional costs for firms when paying below the standard minimum wage, is the mechanism at play. For instance, we find that firms with a higher tolerance for paying heterogeneous wages mainly use the subminimum wage, and that firms that do utilize the subminimum wage often revert to using the standard minimum wage for subsequent eligible hires.
Collective Bargaining in Finland (with Petri Böckerman, Tuomas Kosonen and Kasperi Kuuskoski)
Inequality in Finland: Evidence from Distributional National Accounts (with Ohto Kanninen and Terhi Ravaska)
Older working papers (inequality and economic growth):
When Aiyagari meets Piketty: Growth, Inequality and Capital Shares (with Kari Heimonen, Juha Junttila and Teemu Pekkarinen, February 2021). New version (February 2023)