Stairway to Heaven? Selection into Entrepreneurship, Income Mobility and Firm Performance

Abstract
Using detailed full-population data from Finland, we provide evidence on selection into entrepreneurship and the dynamic implications of establishing a new business. Individuals at the very top of the personal income distribution are much more likely to start a new incorporated business compared to others. There is no similar selection based on parental income, but more than half of new entrepreneurs have entrepreneurial parents. Entrepreneurship is associated with a similar average income gain of 20% relative to comparable wage earners throughout both personal and parental income distributions. However, key firm-level outcomes such as productivity and job creation are positively linked with personal income. This suggests that high-income individuals do not only benefit from entrepreneurship personally, but their businesses are associated with the largest positive spillovers in the economy. In contrast, we find no significant differences in the outcomes of new firms by parental income or parental background in entrepreneurship.