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Launching with a Parachute: The Gig Economy and Entrepreneurial Entry

Author

Listed:
  • John M. Barrios

    (Washington University)

  • Yael V. Hochberg

    (Rice University and NBER)

  • Hanyi Yi

    (Rice University)

Abstract

The introduction of the gig economy creates opportunities for would-be entrepreneurs to supplement their income indownside 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 ride hailing 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 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.

Suggested Citation

  • John M. Barrios & Yael V. Hochberg & Hanyi Yi, 2020. "Launching with a Parachute: The Gig Economy and Entrepreneurial Entry," Working Papers 2020-21, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-21
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    File URL: https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_202021.pdf
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    References listed on IDEAS

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    2. Catherine, Sylvain & Yannelis, Constantine, 2023. "The distributional effects of student loan forgiveness," Journal of Financial Economics, Elsevier, vol. 147(2), pages 297-316.

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    More about this item

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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