Younger management ranks generate more entrepreneurs

This study aims to understand whether firms with younger managers are likely to spawn more entrepreneurs. Entrepreneurship is a key factor behind innovation and economic growth. In countries with ageing workforces, managerial positions tend to be filled by older individuals, which may lead to a decline in entrepreneurship rates, endangering future economic development.

Past studies indicate that most entrepreneurs do not start their work lives as such, often working first as salaried employees, accumulating experience that is valuable for their future entrepreneurial endeavors. Managerial experience is particularly important for future entrepreneurs, as it fosters skills related with leadership and strategic decision-making.

The paper tests whether firms with older managers have less workers becoming entrepreneurs. The hypothesis is that older managers are more likely to remain in their positions, rather than looking for new challenges, delaying the career progression of younger employees. If these employees cannot reach managerial positions, they will not get the experience required for entrepreneurship, being less likely to start new businesses.

Using data on the careers of managers and employees in Portuguese firms, the paper finds that workers with managerial experience, especially top managers, are more likely to become entrepreneurs. In addition, in firms with older managers, employees are less likely to reach managerial roles, which in turn leads to lower likelihoods of them becoming entrepreneurs. Finally, workers who progress in their careers more slowly than average are more likely to move to other firms, but not more likely to create new startups.

Extrapolating the results to a generalized setting of ageing workforces, such as those in Western Europe, South Korea, and Japan, the paper points to the risk that entrepreneurship rates may decline as younger workers take longer to progress in their career ladders.

Click here to go to the paper by Rui Agostinho, Rui Baptista, Jolanda Hessels, Hugo Castro-Silva, and Peter van der Zwan.