The Relationship Between Recessions During Impressionable Years and Entrepreneurship in Later Adulthood

Abstract

Impressionable years hypothesis suggests that economic experiences between 18 and 25 years of age can strongly influence attitudes towards entrepreneurship and remain unchanged for the rest of life. Accordingly, we empirically investigate the relationship between economic downturns during youth and later-life entrepreneurship using Gallup data 2009-2014. Identification is achieved through variations across 134 countries and cohorts born between 1954 and 1989. At least one recession during impressionable years increases future self-employment/business ownership by 6/10 \%  at the outcome means controlling for age, country and year fixed effects as well as country-specific age trends and demographic variables. More than 80\% of people start their business after the age of 25 while median age at first business is 32. Economic shocks increase the future likelihood of business ownership for people who started a business because they couldn't find a suitable job, wanted to be their own boss and had a great idea. Findings remain similar after controlling for economic shocks experienced before and after impressionable years. Graduating from college and entering the job market in a bad economy during impressionable years cannot explain our results. Our results are also robust to controlling for behavioral variables because recession experiences at youth are not associated with subjective measures of risk-taking, optimism and locus of control. Our results are also robust to selection bias due to excluding people who are not working. The effects become larger when we restrict the sample to those who started a business after the age of 25 and control for selection on unobservables.

About the presenter’s visit

Cahit Guven will be visiting the School of Economics on 12^th September 2019.  While here he will be using room 520A Colin Clark Building.  If you would like to meet with him or have lunch or dinner with him please contact Haishan Yuan who will be his host while at The University of Queensland.  Haishan Yuan can be contacted on h.yuan@uq.edu.au.