Does skill balancing prepare for entrepreneurship? Testing the underlying assumption of the jack-of-all-trades view

ABSTRACT

Lazear’s jack-of-all-trades view of entrepreneurship predicts that individuals with a more balanced skill set are more likely to enter entrepreneurship. This relationship is often explained by either the investment or the endowment hypothesis. Both hypotheses describe skill balancing by those more interested in entrepreneurship per se. Previous studies which have attempted to determine the relative importance of both hypotheses have neglected the important question of whether balanced skills are actually productive in preparing an individual for entrepreneurship. We test this key underlying assumption by introducing a new measure of skill balancing that measures the breadth of skills directly and introduces exogenous skill balancing due to involuntary job changes. Results suggest that skill balancing through an external shock to an individual’s skill set also increases the probability of entering entrepreneurship. Thus, the underlying assumption of the jack-of-all-trades view that balanced skills support entrepreneurship can also be confirmed for exogenous skill balancing. We contribute to the discussion of whether entrepreneurs are born or made by suggesting that even individuals not predisposed to entrepreneurship can be productively prepared for it.

KEYWORDS:

• Jack-of-all-trades view
• entrepreneurship
• balanced skills
• involuntary job change

JEL CLASSIFICATION:

• J24
• M13
• L26

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Silva (2007) is a notable exception which utilizes panel methods, though still with the standard proxy for balanced skills.

² See Parker (2018) for a discussion on the problems of categorizing such workers as self-employed or otherwise.

³ The Federal Statistical Office of Germany classifies all occupations along different hierarchical levels ranging from broad 1-digit ‘areas’ to fine-grained 4-digit occupational ‘classes’ (Statistisches Bundesamt 2016). Here the 2-digit ‘groups’ classification was used which defines 88 occupational groups.

⁴ Table A2 in the Appendix lists all possible answers. See Block and Sandner (2009) for a similar use of this variable to define opportunity and necessity entrepreneurs.

⁵ The 11 industries included are: agriculture, forestry and fishing; mining, quarrying and other industry; manufacturing; wholesale and retail trade, transportation and storage, accommodation and food service activities; information and communication; financial and insurance activities; real estate activities; professional, scientific, technical, administration and support service activities; public administration, defence, education, human health and social work activities; other services.

⁶ Note that skill sets may remain unchanged even in the case where the individual switches industry if the job performed is the same or similar. Indeed 57% of job changes without an increase in skill set are for changes in industry and 66% of job changes with an increase in skill set are within the same industry. This reiterates the issues with measures of balanced skills which assume an increase in skill through change in industry (e.g. Åstebro and Thompson 2011; Tegtmeier, Kurczewska, and Halberstadt 2016).

⁷ An additional test of whether involuntary job changes do indeed represent an exogenous increase in skill set is to check that there is no correlation between the increase in skills that comes about through involuntary changes and an increase in skills that arises through voluntary changes. This is indeed the case in this sample – there is no correlation between the variables no. of prior voluntary job changes with increase in skill set and no. of prior involuntary job changes with increase in skill set.

⁸ Previous studies have shown mixed evidence on the effect of education: Robinson and Sexton (1994) and Davidsson and Honig (2003) find that education increases the probability of entering self-employment; Blanchflower (2000) finds that it is the least and the most educated that are more likely to enter self-employment; in a meta-analysis Van der Sluis, Van Praag, and Vijverberg (2008) conclude that there is no effect of education on entry to self-employment.

Additional information

Funding

This work was supported by the Deutsche Forschungsgemeinschaft [MU 3573/2-2].