Here is the link to my job market page. It includes the current version of my dissertation which I have been working on the last year, which is called: "Self-Employment does not measure Entrepreneurship".
Innovative Entrepreneurship and the growth of new firms is believed to be important by economists and by policy makers. However we generally lack good quality data on entrepreneurship, while there is plenty of data on self-employment. Therefore economists use the later to test theories on the former.
But how well does self-employment do as an empirical tool? During the two lasts years I have attempted to assemble two new datasets of entrepreneurship in order to contrast it with self-employment.
The first dataset is the per capita number of self-made billionaires who became rich by founding a new company. I investigate the source of wealth for around 1700 billionaires on Forbes list of the world's richest, identifying 996 entrepreneurs in 53 countries.
Second, as part of a large Swedish survey on twins, I added questions about aversion towards ambiguity (economists believe that entrepreneurs face more ambiguity or incalculable risk than salaried workers) as a question where I ask business owners to self-identify as entrepreneurs or self-employed based on the ambition to grow and innovate. Surprisingly, 80% of the self-employed do not consider themselves entrepreneurs.
What I find is that in many important applications, using self-employment as a proxy often gives you the opposite result you would get from using entrepreneurship data. Across countries, the rate of entrepreneurship is reversely related to the rate of non-agricultural self-employment.
Here is a picture for industrialized countries (the pattern is the same across all available countries).
The United States has 4 times higher rate of per capita entrepreneurs as western Europe. Using a different metric, 31% of the largest American firms were founded by individual entrepreneurs since World War II, compared to only 7% of the largest western European firms.
In contrast, the self-employment rate of western Europe is twice that of the United States.
Taxes, the level of regulations, the level of trust and the quality of institutions are examples of variables that are related in reverse ways between entrepreneurship and self-employment.
Within the United States, I point out that geographic locations with lots of entrepreneurship such as Silicon Valley and Boston have lower rates of self-employment, fewer employed in small firms, lower entry into business start up and lower firm density than the national average.
I find that immigrants, who tend to have higher rates of self-employment, have lower rates of high-impact entrepreneurship. 11% of Americas most successful entrepreneurs were born outside the U.S, even though the workforce is 16% foreign born.
While self-identified Swedish entrepreneurs indeed have higher tolerance of ambiguity than salaried workers, the self-employed do not. This is not that surprising once you consider that innovative entrepreneurship is faced with hard to calculate uncertainty about technology and demand, while self-employed, who are predominately carrying out familiar tasks, have higher risk but probably not much higher ambiguity as ordinary workers.
I develop a model to account for some of the patterns, pointing out that successful entrepreneurship tends to reduce self-employment as part of the process of economics development. This happens as more productive entrepreneurial firms absorb less productive self-employed. Similarly, in countries with business-friendly policies, the most talented individuals and firms grow and absorb many of the mom-and-pop operations, increasing entrepreneurship and reducing self-employment.
Similarly, when taxes are high and the economy regulated, it will be more difficult for entrepreneurial companies to emerge, and to grow rapidly and absorb less efficient companies. Instead such economies have lots of self-employed (who can more easier evade taxes and regulations). The empirical regularity that high tax levels and a heavy regulatory burden tend to be associated with high levels of self-employment (think of southern Europe and third world economies) should not be miss-interpreted as implying that taxes do not effect entrepreneurship.
Rather than treating small business and innovative Schumpeterian entrepreneurship as more or less synonymous, policy makers should be aware that they face a trade-off: either we pursue policies that give us more small business or we aim to encourage entrepreneurship.
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