Parents' income, not smarts, key to entrepreneurship - study

Research like this is an early part of a process that can eventually turn into government planning.

Illustrative photo of Israeli money (photo credit: MARC ISRAEL SELLEM)
Illustrative photo of Israeli money
(photo credit: MARC ISRAEL SELLEM)
What leads someone to create a start-up?
A new study by the Finance Ministry found that the income of someone’s parents is the factor that correlates most to entrepreneurship, with higher wealth connected to a greater likelihood of being a start-up founder.
The study analyzed a unique data set related to Israeli entrepreneurs age 25 to 35, charting a person’s learning ability – as measured by academic achievements and standardized test scores – as well as demographic data about his or her parents.
“A strong economic base may benefit those interested in setting up a start-up, providing an economic safety net in the event of failure,” the study noted. In addition, it is likely that individuals from strong economic backgrounds receive greater exposure to messages about entrepreneurship and innovation, and thereby model their career paths.
A significant connection between the parents’ level of education and entrepreneurship was also noted. That connection is even stronger if the parents studied science or technology. Interestingly, there was no difference whether the father or mother was the one who came from that background.
Those whose parents ranked in the top 20% of income but scored in the lower 50% in math on the Meitzav academic achievement test had a higher chance of becoming an entrepreneur than those whose parents’ income was among the lower 60% but scored in the top 10% in math.
“The main takeaway from this study is that Israel has a reservoir of unrealized potential,” said Yona Hackett, a chief economist in the Finance Ministry. “We have a lot of children who are very talented, and it’s a shame to let that go to waste.” Research like this is an early part of a process that can eventually turn into government planning, he explained.
Entrepreneurship has very little to do with being smart, the study found. The learning ability component explained only about 11% of the gap in the probability of being a start-up entrepreneur between individuals from different economic backgrounds.
However, the report said, the ability to learn quickly is a significant factor for finding work in the hi-tech sector. According to the statistical model, learning ability accounted for 33% of the gap between different income classes to work in hi-tech.
The report noted that understanding these factors is more important than ever as the coronavirus crisis is shifting more of Israel’s economy toward hi-tech.
“In this context, understanding the mechanisms that lead to the ‘formation’ of hi-tech entrepreneurs is of great importance because they constitute an important growth engine for the sector as a whole,” the report said.