Research

Using Canadian administrative data, I show that childbirth has substantial and persistent negative effects on female entrepreneurs’ firm performance, while father-owned businesses remain largely unaffected. Childbirth also reshapes the firm’s workforce. Although incumbent employees experience earnings losses, mother-owned firms become more likely to hire and retain mothers, and employee fertility increases. These patterns are consistent with a shift toward family-friendly firm culture. Finally, I show that childcare availability and progressive gender norms mitigate the adverse effect of childbirth on the entrepreneurship gap.

Entrepreneurs with better diversified portfolios provide more insurance to employees against labor income risk: in a sample of over 524,000 Canadian firms and 858,000 owners, firms owned by more diversified entrepreneurs offer more stable jobs and earnings to employees when faced by idiosyncratic shocks. A one standard deviation increase in owner’s diversification reduces the shock’s pass-through rate to labor layoffs by 13% and to workers’ earnings by 41%. The data are consistent with such insurance being partly provided to retain valuable human capital and partly to avoid costly terminations. There is no evidence of insurance being priced in average wages.

Most entrepreneurs live in households with multiple members, yet the existing academic work treats them as isolated individuals, overlooking how intra-household risk sharing may shape firm-level decisions. Using an exogenous increase in labor income risk, we show that entrepreneurs married to exposed workers reduce firm size and leverage, and increase their demand for liquid assets. Additional empirical evidence, using proxies for risk aversion and firm riskiness, supports a precautionary savings motive. We develop a macro model with risk-averse entrepreneurs who have heterogeneous productivity and face borrowing constraints. Relative to a conventional economy with entrepreneurs and workers as separate agents, an economy featuring entrepreneurs married to workers leads to greater concentration of capital among the most productive entrepreneurs. Following a negative productivity shock, concentration further increases, but total output declines relative to a conventional economy.