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.