Abstract
We compare skill sets of employees working in businesses of different size to the skill sets of entrepreneurs. Employees in large businesses tend to have a lower skill balance than those working in small businesses; yet, the skill balance of entrepreneurs remains the largest. Our evidence suggests that the skill level and skill scope matter for balance and increase with formal education levels but decrease with the number of previous occupations. We find a positive relationship between skill balance and income that is strongest for entrepreneurs. For employees, the relationship remains positive but the magnitude of the association decreases when business size increases.
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Notes
Skill balance can be observed on an individual and a firm level, which is why it is important to remember that here our focus is not on the entire business where skill balance can be achieved by groups of specialists who complement each other (e.g., Marino et al. 2012). Instead, the focus remains on the individual as in Lazear’s model of entrepreneurship.
Their measure is taken from a survey that assesses a total of five cognitive and social abilities. The abilities are (1) verbal, (2) mathematical, (3) technical, (4) clerical or coding speed, and (5) social ability (Hartog et al. 2010).
Intra-group variation, as found for employees, might also exist for the self-employed. The reported regressions already include controls for firm size. In separate regressions (available upon request), we investigate whether balance is higher for solo entrepreneurs who cannot yet rely on employees to compensate for their missing skills. There is no evidence of differences between self-employed persons with and without employees.
Tests for non-linearities in the relationship between prior occupations and skill balance (using higher-order polynomials or dummies for the number of prior occupations) confirm our findings of a negative association between the two variables.
Lazear’s theory expects individuals to increase the level of their weakest skill. Thus, we always take the highest skill level as the goal that needs to be achieved. If an individual reports both expert and basic skills we only count expert skills. We tried alternative balance measures that take into account both skill levels. It turns out that our alternative indices yield the same balance structure but display larger confidence intervals. Results are available upon request.
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Acknowledgments
We are grateful to Michael Fritsch, Ljubica Nedelkoska, Michael Wyrwich, and two anonymous referees for providing us with helpful comments.
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Bublitz, E., Noseleit, F. The skill balancing act: when does broad expertise pay off?. Small Bus Econ 42, 17–32 (2014). https://doi.org/10.1007/s11187-013-9474-z
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DOI: https://doi.org/10.1007/s11187-013-9474-z