Families, Human Capital, and Small Business: Evidence from the Characteristics of Business Owners Survey

Recent research has concluded that the children of business owners are substantially more likely than others to become self-employed themselves. The authors of this study find that more than half of business owners in the confidential, restricted-access 1992 Characteristics of Business Owners Survey had a self-employed family member before starting their business. Of the group with a self-employed family member, fewer than half had worked in that family member's business, suggesting that the intergenerational link in self-employment is not primarily due to the acquisition of general and specific business human capital. In contrast, the success of small businesses owned by those surveyed was only weakly correlated with having a self-employed family member, but strongly correlated with prior work experience in a family member's business, which is one method of acquiring general and specific business human capital. Another finding is that only 1.6% of the small businesses surveyed were inherited.