The U.S. is undergoing a long-term decline in the rate of firm startups. We find that this slowdown in entrepreneurship is more pronounced for skilled individuals. In particular, between 1985 and 2015 entry into entrepreneurship declined by 21% for those with at least a college degree and increased by 11% for those with a high school degree or some college experience. We posit that this skill biased entrepreneurial decline is a response to the changing income structure of workers and entrepreneurs that occurred over the same period. In support of this view, we find that, for skilled individuals, entrepreneurial income grew more slowly than worker's income while for unskilled individuals both incomes grew at relatively similar rates. We also provide evidence for entrepreneurial polarization consistent with wage polarization. To quantify the impact of income structure on entrepreneurial entry we develop a simple heterogeneous-agent, occupational choice model which takes as given a rising worker skill premium, driven by skill biased technical change. In the model, the rising worker skill premium can account for around two-thirds of the changes in entry among skilled and unskilled individuals. This paper contributes to understanding the forces behind the broader decline in business dynamism in the U.S. and suggests an integral role of rising income inequality.

About the presenter’s visit

Dr Faisal Sohail will be visiting the School of Economics on Wednesday 8th May 2019.  While here he will be using room 520A Colin Clark Building.  If you would like to meet with him or have lunch or dinner with him please contact Dr Jorge Miranda Pinto who will be his host while at The University of Queensland.  Dr Jorge Miranda Pinto can be contacted on j.mirandapinto@uq.edu.au

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Level 6, Colin Clark building (#39)
The University of Queensland St Lucia campus
Room 629