Academic journal article Journal of Regional Analysis & Policy

Effects of Human Capital on the Growth and Survival of Swedish Businesses

Academic journal article Journal of Regional Analysis & Policy

Effects of Human Capital on the Growth and Survival of Swedish Businesses

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1.Introduction

Human capital is made up of the education, experience, rience, inherited abilities, and developed skills that people use in their jobs to produce goods and services and to come up with new ideas and innovations. A vast body of research has studied the effects of human capital on individuals (Becker 1964; Mincer 1974; Card 1999) as well as regions and entire nations (Lucas, 1988; Glaeser et al., 1995; Acs and Armington, 2004; Abel and Gabe, 2011). Studies focusing on individuals often examine the effects on earnings of conventional measures of human capital, such as formal education (e.g., years of schooling) and experience (e.g., age), while studies focusing on regions typically analyze the effects of the share of the population with a college degree on indicators of regional productivity (e.g., per capita income) and growth (e.g., population change, new firm formation).

The connection between human capital and individual earnings is reasonably straightforward : education, experience, abilities and skills tend to increase a person's productivity, which leads to higher wages and salaries.1 Human capital contributes to regional vitality in several ways. A large collection of educated and skilled workers increases the output of regions because, as noted above, these people are highly productive. Additionally, the presence of educated and skilled individuals makes those around them more productive through human capital externalities (Rauch, 1993; Moretti, 2004). Knowledge spillovers are also cited as a reason for the positive effect of a region's human capital on new firm formation (Acs and Armington, 2004). Glaeser (2011) explains that cities with highly-educated people outperform their peers because new technologies favor skilled workers and globalization allows for the outsourcing of low-skilled - but not high-skilled - labor.

Business establishments are entities that are sometimes larger than one individual (except in the case of sole proprietorships), but are most often smaller than entire regions. These entities serve the purpose of organizing the activities of workers, combining them with physical and financial capital and entrepreneurial direction in the production of goods and services. The human capital embodied in a business establishment can include the education, experience, and skills of its workforce as well as the inherited abilities and cultural background, such as language competencies, that influence worker productivity (Hofstede, 1980; Throsby, 1999).

Past research analyzing the growth and survival of firms suggests that human capital is an important factor affecting business performance (Colombo and Grilli, 2005; Pennings et al., 2008; Ganotakis, 2012). Many studies, however, often have a narrow definition of human capital focusing on an individual's education and/or experience. Given that human capital is a broad concept with many dimensions, it is important to expand its scope beyond education and experience and also account for an individual's skills. These skills are often reflected by a person's current (or previous) occupation. For example, Boden and Nucci (2000, p.353) suggest that working as a manager can "enhance workers' latent managerial ability as well as their knowledge of their managerial competence." Another feature of past research on the effects of human capital on businesses is that these studies often focus on the human capital of the person who started a company, which is found to have a positive effect on its performance (Colombo et al., 2004; Ganotakis, 2012).

This paper examines the effects of the human capital of all employees working in an establishment - not just the entrepreneur - on the performance of Swedish businesses, both in terms of their survival (i.e., remaining in operation) and employment growth over time.2 We take a broad view of human capital which accounts for the education, experience, and occupations of individuals working in the business establishment. …

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