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1. Introduction

The literature on self-employment and small business ownership has grown

rapidly in the past several years. The upsurge in interest is at least partly due to

arguments that small businesses create a disproportionate share of new jobs in the

economy, represent an important source of innovation, and have a notable effect on

political decisions in the United States (see Birch 1979, Brown, Hamilton and Medoff

1990, and Acs 1999 for example). In addition, many academicians and policymakers

view self-employment as a route out of poverty and as an alternative to unemployment or

discrimination in the labor market.1 Several states and the federal government are

currently promoting self-employment as a way to leave the welfare and unemployment

insurance rolls, and there exist a plethora of governmental and private programs

promoting business ownership among minorities, women, and other disadvantaged

groups.2 Finally, recent research suggests that the self-employed earn more on average

than wage and salary workers (see Borjas 1999 for example).

An important finding in the rapidly growing literature on self-employment is that

the probability of self-employment is substantially higher among the children of business

owners than among the children of non-business owners (see Lentz and Laband 1990,

Fairlie 1999, Dunn and Holtz-Eakin 2000, and Hout and Rosen 2000). These studies

generally find that an individual who had a self-employed parent is roughly two to three

times more likely to be self-employed than someone who did not have a self-employed

1 See Glazer and Moynihan (1970), Light (1972, 1979), Sowell (1981), Moore (1983), and Bates (1997).

2 See Guy, Doolittle, and Fink (1991) and Raheim (1997) for descriptions of the welfare program, U.S. Department of Labor (1992), Benus et al. (1995) and Vroman (1997) for descriptions of the UI program, and Balkin (1989), Bates (1993) and Severens and Kays (1999) for descriptions of programs for other disadvantaged groups.

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