The Bank of England has published a staff working paper finding that firms perform better when founding teams combine similar levels of talent with diverse skill specializations, but matching frictions prevent many productive teams from forming. Using Portuguese employer-employee and balance-sheet data from 1991 to 2018, the research finds that such teams create larger, more productive and longer-lived firms, while potential founders with dissimilar skills are less likely to start businesses together. A calibrated model indicates that removing the bias toward meeting founders with similar skill profiles would shift activity from low-productivity solo firms to more productive teams, raising average wages by 6% and output by 4%. Even unbiased random search would leave substantial gains unrealized because founders would not systematically reach their highest-surplus partners. Baseline output is about 36% below an optimal-assignment benchmark, reflecting the combined cost of biased exposure and random search.
Bank of England working paper finds founder matching frictions curb output and productive team formation
A Bank of England working paper finds that founding teams combining similar talent with diverse specializations build larger, more productive and longer-lived firms, but matching frictions impede their formation. Removing biased exposure toward similar-skilled founders could raise average wages by 6% and output by 4%, while baseline output is about 36% below an optimal-assignment benchmark.