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Can Income Diversification Explain the Growing Entrepreneurship Gap by Age?

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  • Christian E. Weller
  • Jeffrey B. Wenger

Abstract

Entrepreneurship has declined among households younger than 50 years, while it has grown among older households over the past few decades. We hypothesize that this divergence results from younger households having less diversified income from sources unrelated to business income such as capital income and annuity income than is the case for older households. Using data from the Federal Reserve’s Survey of Consumer Finance, we calculate descriptive and multivariate statistics. We find that income diversification from capital income has declined for both younger and older households, while the role of income diversification in people working as entrepreneurs has fallen among younger households and stayed constant among older ones. We also find some tentative evidence that income diversification from Social Security and annuity income plays a role in determining entrepreneurship for older households, but has no effect among younger households. Our results suggest that cash income, unrelated to risky business income, plays a crucial role in determining entrepreneurship and could explain the divergent entrepreneurship experience between younger and older households.

Suggested Citation

  • Christian E. Weller & Jeffrey B. Wenger, 2017. "Can Income Diversification Explain the Growing Entrepreneurship Gap by Age?," Forum for Social Economics, Taylor & Francis Journals, vol. 46(2), pages 145-159, April.
  • Handle: RePEc:taf:fosoec:v:46:y:2017:i:2:p:145-159
    DOI: 10.1080/07360932.2017.1307136
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    References listed on IDEAS

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    1. Kevin E. Cahill & Michael D. Giandrea & Joseph F. Quinn, 2013. "New Evidence on Self-Employment Transitions Among Older Americans with Career Jobs," Working Papers 463, U.S. Bureau of Labor Statistics.
    2. Fairlie, Robert, 2015. "The Kauffman Index: Startup Activity | National Trends," Santa Cruz Department of Economics, Working Paper Series qt5cb198rq, Department of Economics, UC Santa Cruz.
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