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Entrepreneurship, Economic Conditions, and the Great Recession

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  • Fairlie, Robert W.

    () (University of California, Santa Cruz)

Abstract

The "Great Recession" resulted in many business closings and foreclosures, but what effect did it have on business formation? On the one hand, recessions decrease potential business income and wealth, but on the other hand they restrict opportunities in the wage/salary sector leaving the net effect on entrepreneurship ambiguous. The most up-to-date microdata available – the 1996 to 2009 Current Population Survey (CPS) – are used to conduct a detailed analysis of the determinants of entrepreneurship at the individual level to shed light on this question. Regression estimates indicate that local labor market conditions are a major determinant of entrepreneurship. Higher local unemployment rates are found to increase the probability that individuals start businesses. Home ownership and local home values for home owners are also found to have positive effects on business creation, but these effects are noticeably smaller. Additional regression estimates indicate that individuals who are initially not employed respond more to high local unemployment rates by starting businesses than wage/salary workers. The results point to a consistent picture – the positive influences of slack labor markets outweigh the negative influences resulting in higher levels of business creation. Using the regression estimates for the local unemployment rate effects, I find that the predicted trend in entrepreneurship rates tracks the actual upward trend in entrepreneurship extremely well in the Great Recession.

Suggested Citation

  • Fairlie, Robert W., 2011. "Entrepreneurship, Economic Conditions, and the Great Recession," IZA Discussion Papers 5725, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5725
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    References listed on IDEAS

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    Cited by:

    1. Bartz, Wiebke & Winkler, Adalbert, 2016. "Flexible or fragile? The growth performance of small and young businesses during the global financial crisis — Evidence from Germany," Journal of Business Venturing, Elsevier, vol. 31(2), pages 196-215.
    2. Francine Lafontaine & Kathryn Shaw, 2016. "Serial Entrepreneurship: Learning by Doing?," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 217-254.
    3. Robert W. Fairlie & Dean Karlan & Jonathan Zinman, 2015. "Behind the GATE Experiment: Evidence on Effects of and Rationales for Subsidized Entrepreneurship Training," American Economic Journal: Economic Policy, American Economic Association, pages 125-161.
    4. Robert W. Fairlie, 2013. "Minority and immigrant entrepreneurs: access to financial capital," Chapters,in: International Handbook on the Economics of Migration, chapter 8, pages 153-175 Edward Elgar Publishing.
    5. Cockx, Bart & Ghirelli, Corinna, 2016. "Scars of recessions in a rigid labor market," Labour Economics, Elsevier, pages 162-176.
    6. Andrés Rodríguez-Pose & Daniel Hardy, 2015. "Cultural diversity and entrepreneurship in England and Wales," Environment and Planning A, Pion Ltd, London, vol. 47(2), pages 392-411, February.
    7. repec:kap:sbusec:v:49:y:2017:i:3:d:10.1007_s11187-017-9851-0 is not listed on IDEAS
    8. Fairlie, Robert, 2016. "Racial Differences in Labor Market Transitions and the Great Recession," Santa Cruz Department of Economics, Working Paper Series qt4542h7rq, Department of Economics, UC Santa Cruz.
    9. Hugo Horta & Michele Meoli & Silvio Vismara, 2016. "Skilled unemployment and the creation of academic spin-offs: a recession-push hypothesis," The Journal of Technology Transfer, Springer, vol. 41(4), pages 798-817, August.
    10. Fritsch, Michael & Kritikos, Alexander S. & Pijnenburg, Katharina, 2013. "Business Cycles, Unemployment and Entrepreneurial Entry: Evidence from Germany," IZA Discussion Papers 7852, Institute for the Study of Labor (IZA).
    11. Francesc Miralles & Ferran Giones & Carla Riverola, 2016. "Evaluating the impact of prior experience in entrepreneurial intention," International Entrepreneurship and Management Journal, Springer, vol. 12(3), pages 791-813, September.
    12. Ghimire, Keshar Mani & Maclean, Johanna Catherine, 2015. "Economic conditions at school-leaving and self-employment," Economics Letters, Elsevier, vol. 137(C), pages 154-156.
    13. Halicioglu, Ferda & Yolac, Sema, 2015. "Testing the impact of unemployment on self-employment: empirical evidence from OECD countries," MPRA Paper 65026, University Library of Munich, Germany.
    14. Manuel Adelino & Song Ma & David T. Robinson, 2014. "Firm Age, Investment Opportunities, and Job Creation," NBER Working Papers 19845, National Bureau of Economic Research, Inc.
    15. Vera Rocha & Anabela Carneiro & Celeste Varum, 2015. "Entry and exit dynamics of nascent business owners," Small Business Economics, Springer, vol. 45(1), pages 63-84, June.
    16. Gohmann, Stephan F. & Fernandez, Jose M., 2014. "Proprietorship and unemployment in the United States," Journal of Business Venturing, Elsevier, vol. 29(2), pages 289-309.
    17. Ken Clark, 2015. "Ethnic minority self-employment," IZA World of Labor, Institute for the Study of Labor (IZA), pages 120-120, January.
    18. Devece, Carlos & Peris-Ortiz, Marta & Rueda-Armengot, Carlos, 2016. "Entrepreneurship during economic crisis: Success factors and paths to failure," Journal of Business Research, Elsevier, vol. 69(11), pages 5366-5370.
    19. Hanspal, Tobin, 2016. "The effect of personal financing disruptions on entrepreneurship," SAFE Working Paper Series 161, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    20. Anindo Sarker & Bulent Unel, 2017. "The Impact of Bank Expansion on Self-Employed Business Owners: Evidence from US States," Departmental Working Papers 2017-06, Department of Economics, Louisiana State University.
    21. Yu, Li & Orazem, Peter F. & Jolly, Robert W., 2014. "Entrepreneurship over the business cycle," Economics Letters, Elsevier, vol. 122(2), pages 105-110.
    22. repec:spr:intemj:v:13:y:2017:i:4:d:10.1007_s11365-017-0456-5 is not listed on IDEAS
    23. Brunello, Giorgio & Langella, Monica, 2016. "Local agglomeration, entrepreneurship and the 2008 recession: Evidence from Italian industrial districts," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 104-114.
    24. Tran, Hien Thu & Carbonara, Emanuela & Santarelli, Enrico, 2017. "Determinants of Novice, Portfolio and Serial Entrepreneurship: An Occupational Choice Approach," GLO Discussion Paper Series 74, Global Labor Organization (GLO).

    More about this item

    Keywords

    self-employment; entrepreneurship; great recession; unemployment;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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