Discrimination and Entrepreneurship: Evidence from LGBT Rights Laws

Abstract

This study revisits the well-established claim that reducing discrimination spurs entrepreneurial entry. We propose that the effect of antidiscrimination initiatives on entrepreneurship depends crucially on whether discrimination originates on the demand- or the supply-side of the entrepreneurial process. The benefits of antidiscrimination practices in the context of entry are based on the study of the demand-side discrimination, or bias which arises when prospective entrepreneurs face discrimination by key resource providers for a new venture (i.e., investors, banks, prospective employers). We hypothesize the opposite effect on the supply-side, or when prospective entrepreneurs face discrimination in paid employment. Using evidence from the enactment of LGBT antidiscrimination policies, we show that initiatives to reduce employer discrimination deter entry into entrepreneurship because they increase the appeal of paid employment relative to entrepreneurship. Despite the reduction in the rates of entrepreneurship, however, new ventures’ growth orientation increases because antidiscrimination policies motivate the pursuit of higher-potential opportunities.