Dad’s Job Could Shape Your Success as an Entrepreneur: Eco Pulse

Dinner-table training really pays off, research shows

Entering the same field as your parent could boost your success significantly – especially if you’re a company founder. 

The benefit seems to come from dinner-table conversation, as you’ll find out if you read through this week’s economic research roundup. We’ve also featured research questioning the “deaths of despair” hypothesis for why American middle-age mortality is worsening, a study looking at whether global forces are holding down inflation and another digging into a crucial question as stock indexes trace new highs – are assets overvalued? 

Check this column each Tuesday for new and interesting economic research from around the world. 

Like father, like son

Dinner Table Human Capital and Entrepreneurship
Issued January 2018
Available on the NBER website

Sons who start companies in the same industry as their father tend to outperform their peers, new research from University of Bergen’s Hans Hvide and Stanford University’s Paul Oyer finds. Sons are likely to follow in their father’s footsteps: about 11 percent of entrepreneurs start firms in the same basic field, much more than random sorting would suggest. And those men invest more initial capital, are much more likely to survive four years, and have more employees. It’s not a simple matter of dad helping out, because the startup premium is nearly as strong for entrepreneurs whose fathers had died prior to their company founding. Instead, it seems to be the case that dinner-table conversation is key. A survey found that entrepreneurs most often cited conversations at home and observing parents at work as ways in which they picked up industry knowledge from their parents. 

Interestingly, there’s also a boost for wage-workers who follow parental example: Being employed in the same industry as one’s father – but not at the same plant –  results in a 4 percent wage premium. “The value of dinner table human capital is substantial in the labor market but does not appear to be as valuable as it is for entrepreneurs,” the authors write. 

Weekly (demo)graphic

The Intergenerational Effects of Parental Incarceration
Issued  January 2018
Available on the NBER website

On the subject of parents influencing their children, here’s a more sinister one. In the U.S., the share of children with an incarcerated father on any day has almost doubled in the past 25 years, climbing to 2.2 percent in 2015 from 1.3 percent in 1990, and the burden falls heavily on poor kids – 12.5 percent of them have a parent in jail or prison at some point in their childhood. The share of kids with incarcerated parents has also about doubled in Europe, though from a lower level. That prompts an important question: How is this affecting economic outcomes for those children? 

Badly, as you might expect, and as the graphic below – based on data from Sweden – shows. “The incarceration of parents with young children may increase the intergenerational persistence of poverty and criminal behavior, even in affluent countries with extensive social safety nets,” the authors of this paper write. 

Deaths of despair? More like death by prescription

Deaths of Despair or Drug Problems?
This version January 2018
Available on the NBER website

It’s a now-familiar narrative, at least in economic circles. America’s working class, gutted by trade trends and changing skill requirements that cost them jobs and wage gains, has seen a troubling surge in suicides and overdoses, seemingly tied to their deteriorating economic condition.

Not so fast, says new research from economist Christopher Ruhm. Ruhm argues that while it’s true that counties experiencing economic decline between 1999 and 2015 have seen greater increases in alcohol, suicide and drug mortality than those with more robust growth, the relationship owes to characteristics that just happen to be correlated with changes in economic conditions.  “After controlling for these confounding factors, less than one-tenth of the increase in drug mortality rates was explained by changes in economic factors and none of those due to nondrug suicides or alcoholic liver disease,’’ he writes. So what is causing the increase in drug deaths, in particular? Changes in the drug environment, according to Ruhm. Widespread opioid prescription and subsequent shift to fentanyl and heroin caused the crisis, so trying to fix the economic situation is unlikely to solve the problem.

Don’t blame globalization

Global Factors and Trend Inflation
Published January 2018
Available on the Bank for International Settlements website

Globalization may be reshaping the global economy, but it isn’t determining inflation trends in many developed nations, based on this new Bank for International Settlements research. Looking at five countries with inflation-targeting central banks, Gunes  Kamber and Benjamin Wong determine that while global shocks help to account for short-term deviations from goal – a fact accounted for in large part by commodity price swings – “they play only a marginal role in driving trend inflation.” Because central banks look through short-term fluctuations and focus on trend, that means they don’t need to account for the global influences.

Importantly, the result doesn’t hold when applied to a group of Asian economies, which have varying monetary policy approaches. There, global factors matter for trend inflation – suggesting that inflation targeting itself may be behind the relative insensitivity.

Rich equities

Valuation Ratios for Households and Businesses
Published Jan. 8, 2018
Available on the San Francisco Fed website

Stock prices might be getting a little out of hand, at least by one metric. Analysts at the San Francisco Fed apply John Campbell and Robert Shiller’s cyclically adjusted price-to-earnings ratio to gauge the outlook for equity market returns, and find that it’s looking a little rich right now. The ratio is above 30 today, way higher than its historical average of about 17. That would predict that stock prices won’t grow at all over the next decade (you read that right), but there are reasons to doubt its validity as a signal. First off, low interest rates mean that future earnings are discounted less, suggesting asset prices should be higher. Volatility has also been low, explaining some of the run-up, and earnings measures that average over the last 10 years capture the weak recession years, so the denominator may look inaccurately glum. 

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