Graduating during a period of high unemployment increases entry to entrepreneurship; the firms founded by these forced entrepreneurs are more likely to survive, innovate, & receive venture-backing, compared to voluntary entrepreneurs

Hacamo, Isaac and Kleiner, Kristoph, Forced Entrepreneurs (April 29, 2021). Journal of Finance, Forthcoming. SSRN: http://dx.doi.org/10.2139/ssrn.2801637

Abstract: Conventional wisdom suggests labor market distress drives workers into temporary self-employment, lowering entrepreneurial quality. Analyzing employment histories for 640,000 U.S. workers, we document graduating college during a period of high unemployment does increase entry to entrepreneurship. However, compared to voluntary entrepreneurs, firms founded by forced entrepreneurs are more likely to survive, innovate, and receive venture-backing. Explaining these results, we confirm labor shocks disproportionately impact high-earners and these same workers start more successful firms. Overall, we document untapped entrepreneurial potential across the top of the income distribution and demonstrate the role of recessions in reversing this missing entrepreneurship.

Keywords: Entrepreneurship, labor markets, recessions, innovation, venture capital

JEL Classification: L26, L25, M13, J23, E32, O31, G02