78 Pages Posted: 29 Jun 2016 Last revised: 4 Sep 2020
Date Written: September 2, 2020
Conventional wisdom suggests labor market declines drive workers towards temporary entrepreneurship and self-employment, lowering the quality of startups. Analyzing the employment histories of 640,000 workers, we document graduating college during a period of high unemployment does increase entry to entrepreneurship. However, based on multiple measures of success, including survival, growth, innovation, and venture capital funding, recession-driven entrepreneurs are equal to or more capable than voluntary entrepreneurs. Explaining these results, we find labor shocks disproportionately impact workers with the greatest wage potential and these same workers start highly-successful firms. Overall, we confirm the prevalence of untapped entrepreneurial potential in the workforce, especially across the top of the income distribution.
Keywords: Entrepreneurship, local labor markets, risk aversion, firm growth, innovation, venture capital
JEL Classification: L26, L25, M13, J23, E32, O31, G02
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