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Small Business Economics

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01-02-2016

Identifying the effect of college education on business and employment survival

Authors: Andrea Asoni, Tino Sanandaji

Published in: Small Business Economics | Issue 2/2016

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Abstract

We use a multipronged identification strategy to estimate the effect of college education on business and employment survival. We account for the endogeneity of both education and business ownership with a competing risks duration model augmented with a college selection equation. We estimate the model jointly on the self-employed and salaried employees in the National Longitudinal Survey of Youth 1979. Unlike most previous studies, we find that college does not increase business survival. By contrast, a college degree significantly increases employment survival. Cognitive skills have a positive impact on survival for both the self-employed and employees. These findings suggest that college benefits the self-employed less than salaried, perhaps by generating skills more useful in employment than self-employment, or because of differences in the value of signaling.

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The Appendix contains a detailed description of how we constructed the employment status.

Keane and Wolpin (1997) do a similar exercise, but construct their employment variables looking at only 9 weeks during the year. They do so for computational reasons. We do not have the same limitations so working status uses all the information/weeks available. Keane and Wolpin also do not consider summer quarters to avoid picking up students’ summer jobs. We calculate the working status with and without summer weeks. The correlation across individuals between the two definitions ranges between .9 in 1979 and .97 in 2003.

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Title: Identifying the effect of college education on business and employment survival
Authors: Andrea Asoni
Tino Sanandaji
Publication date: 01-02-2016
Publisher: Springer US
Published in: Small Business Economics / Issue 2/2016
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-015-9686-5

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