Recent research has suggested that the reduction of entry regulation can promote firm entry and job creation, but little is known about the quality of firms and jobs created through these reforms. To shed light on this question, we employ data from Portugal, a country which implemented one of the most dramatic and thorough policies of entry deregulation in the industrialized world. The impact of these major changes can be traced with a matched employer-employee database that provides unusually rich information on the quality of founders and employees associated with the new firms. Our assessment indicates that the short term consequences of the reform were just as one would predict with a standard economic model of entrepreneurship: The reform resulted in increased firm formation and employment, but mostly among "marginal firms" that would have been most readily deterred by existing heavy entry regulations. These marginal firms were typically small, owned by relatively poorly-educated entrepreneurs, operating in the low-tech sector (agriculture, construction, and retail trade). These firms were also less likely to survive their first two years than comparable firms that entered prior to the reform. The social impact of entry deregulation may be limited by the quality of the firms it creates.
Management literature has identified high-skilled human capital as a crucial dimension of innovation processes at the firm level. In this study, we introduce an alternative view of human capital based on the tasks that firms' workers perform. We propose a measure of cognitive analytical and interpersonal tasks: the degree of abstractism.We argue that the level of abstractism of a firm has an effect on a firm's propensity to innovate and on its product innovation performance. We hypothesize that while the degree of abstractism has a linear positive relationship with the propensity to innovate, the relationship between abstractism and product innovation performance follows an inverted u-shaped relationship. We find partial support to our hypotheses using data from more than six thousand Portuguese firms. We discuss how these results change our understanding of the relationship between human capital and innovation at the firm level.
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