Technical Change and Entrepreneurship
66 Pages Posted: 24 Jun 2020
Date Written: June 2, 2020
In this paper, I document a significant decline in the share of entrepreneurs among US households over the last three decades. Most of this decline is accounted for by a drop in the share of entrepreneurs among college graduates. Using an otherwise standard entrepreneurial choice model with two skill groups of individuals — high skill and low skill — I then argue that the decline in entrepreneurship is the equilibrium outcome of two technological forces that have increased the returns to high-skill labor since the 1980s: the skill-biased technical change and the decrease in the cost of capital goods. I find that these two forces jointly account for three-quarters of the decline in the share of entrepreneurs observed in the United States over the last 30 years.
Keywords: Entrepreneurship, Skill-Biased Technical Change
JEL Classification: E20
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