Launching with a Parachute: The Gig Economy and Entrepreneurial Entry

43 Pages Posted: 24 Mar 2020

See all articles by John Manuel Barrios

John Manuel Barrios

University of Chicago - Booth School of Business

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Hanyi Yi

Rice University - Jesse H. Jones Graduate School of Business

Date Written: March 16, 2020

Abstract

The introduction of the gig economy creates opportunities for would-be entrepreneurs to supplement their income in downside states of the world, and provides insurance in the form of an income fallback in the event of failure. We present a conceptual framework supporting the notion that the gig economy may serve as an income supplement and as insurance against entrepreneurial-related income volatility, and utilize the arrival of the on-demand, platform-enabled gig economy in the form of the staggered rollout of ridehailing in U.S. cities to examine the effect of the arrival of the gig economy on entrepreneurial entry. The introduction of gig opportunities is associated with an increase of ~5% in the number of new business registrations in the local area, and a correspondingly-sized increase in small business lending to newly registered businesses. Internet searches for entrepreneurship-related keywords increase ~7%, lending further credence to the predictions of our conceptual framework. Both the income supplement and insurance channels are empirically supported: the increase in entry is larger in regions with lower average income and higher credit constraints, as well as in locations with higher ex ante economic uncertainty regarding future wage levels and wage growth.

JEL Classification: L26, G39, O3

Suggested Citation

Barrios, John Manuel and Hochberg, Yael V. and Yi, Hanyi, Launching with a Parachute: The Gig Economy and Entrepreneurial Entry (March 16, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-21. Available at SSRN: https://ssrn.com/abstract=3557279 or http://dx.doi.org/10.2139/ssrn.3557279

John Manuel Barrios (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Hanyi Yi

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

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