Self-employment effects on regional growth: a bigger bang for a buck?

Abstract

This paper estimates the net employment spillovers from changes in self-employment (SE) and compares them to spillovers from changes in wage and salary (WS) employment using US county-level data. Our findings offer a policy-relevant perspective on the relative importance of SE and WS employment and help bridge two entrepreneurship research traditions. Our estimated effects of self-employment, at the margin, are substantially larger than identical effects of paid employment. This supports the literature that points to a special role played by self-employed businesses in economic growth. At the same time, the little attention given to SE as a potential engine of growth among policymakers and scholars can be explained, at least in part, by the relatively small total economic impact of self-employment stemming from its small share of the economy. In an austere fiscal environment, however, spending a dollar to stimulate SE is likely to have greater returns as opposed to stimulating WS employment, assuming the costs of adding one SE and one WS job are comparable.