Working Paper: NBER ID: w29725
Authors: Innessa Colaiacovo; Margaret G. Dalton; Sari Pekkala Kerr; William R. Kerr
Abstract: Over the past half-century, while self-employment has consistently accounted for around one in ten of the United States workforce, its composition has changed. Since 1970, industries with high startup capital requirements have declined from 53% of self-employment to 23%. This same time period also witnessed declines in "hometown" local entrepreneurship and the probability of the self-employed being among top earners. Using 2016 data, we show that high startup capital requirements are linked with lower profitability at small scales. The transition away from high startup capital industries appears most closely linked to changes in small business production functions and less due to advantageous reallocation to other opportunities, growth in returns-to-scale among large businesses, or a worsening of financing conditions and debt levels.
Keywords: self-employment; startup capital; entrepreneurship; US economy
JEL Codes: D24; G51; J11; J24; J62; L26; M13; R11; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high startup capital requirements (M13) | lower profitability in small-scale businesses (L25) |
| decline in industries with high startup capital needs (O14) | decline in self-employment (J23) |
| 10% decline in the share of businesses requiring significant startup capital (M13) | 93% higher rate of relative industry growth for self-employment (L26) |
| rising debt levels (H63) | transformation in self-employment trends (J23) |