Are nascent entrepreneurs ‘Jacks-of-all-trades’? A test of Lazear's theory of entrepreneurship with German data

Abstract

In a recent paper Edward Lazear proposed the ‘Jack-of-all-trades’ view of entrepreneurship. Based on a coherent model of the choice between self-employment and paid employment he shows that having a background in a large number of different roles increases the probability of becoming an entrepreneur. The intuition behind this proposition is that entrepreneurs must have sufficient knowledge in a variety of areas to put together the many ingredients needed for survival and success in a business, while for paid employees it suffices and pays to be a specialist in the field demanded by the job taken. This study contributes to the entrepreneurship literature by empirically testing Lazear's hypothesis using a large recent representative sample of the German population. The empirical estimation takes the rare events nature of becoming a nascent entrepreneur and the regional stratification of the sample into account. The results illustrate the statistical significance and economic importance of the ‘jack-of-all-trades’ theory.

Acknowledgements

Research for this paper was done as part of the project Regional Entrepreneurship Monitor (REM) Germany financially supported by the German Research Foundation under grants number WA 610/2-1 and WA 610/2-2. This project is conducted jointly with Rolf Sternberg (University of Cologne, Germany) who is supported with grants number STE 628/71 and STE 628/7-2.

Notes

¹ For further information about the REM project see Bergmann et al . (2002). REM is closely related to GEM, the Global Entrepreneurship Monitor, a multi-country study that investigates the same topics at a national level (see Reynolds et al ., 2000).

² An English version of the questionnaire is not yet available; a German version is available from the author on request.

³ The data will be made available for public scientific use after the completion of the REM project.

⁴ This definition of a nascent entrepreneur is identical to the definition used in the multi-country GEM project mentioned in footnote 1; see Reynolds et al ., 2000, p. 9.

⁵ As has been argued in the introduction, this approach instead of comparing self-employed and paid employees should provide a much sharper test of Lazear's hypothesis because it makes sure that the reported number of fields of experience refers to a period that lies before the start of the own business. In focusing on nascent entrepreneurs versus paid employees all other interviewees – including self-employed who are not nascent, and people out of the labour force like housewives, or those who are only marginally in the labour force by working part-time – have to be dropped from the sample used in the econometric investigation.

⁶ Note that contrary to both Lazear (2002) and Wagner (2003) nationality cannot be included in the model used here because in the REM survey this information is not collected.

⁷ All computations were done with Stata 8.1 (see StataCorp, 2003) using the relogit ado-file available from Gary King's homepage at Harvard <http://gking.harvard.edu>

⁸ To check for non-linear relationships an augmented model has been estimated that includes squared terms for age and number of fields of experience, too. The squared terms were never statistically significant at any conventional level.

⁹ All computations were done using the setx and relogitq ados that come with relogit; see footnote 7.