Working Paper: NBER ID: w27183
Authors: John M. Barrios; Yael V. Hochberg; Hanyi Yi
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 new business formation. 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.
Keywords: Gig Economy; Entrepreneurship; New Business Formation
JEL Codes: G39; J01; L26; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| arrival of ride-hailing platforms (L92) | increase in new business registrations (M13) |
| arrival of ride-hailing platforms (L92) | increase in small business lending to newly registered businesses (M13) |
| increase in new business registrations (M13) | increase in small business lending to newly registered businesses (M13) |
| lower average incomes and higher credit constraints (G59) | more pronounced increase in new business registrations (M13) |
| greater economic uncertainty regarding future wages (J39) | more pronounced increase in new business registrations (M13) |