The Place-Based Structural Determinants and Effects of Self-Employment

Abstract

This study expands on previous research by including a wider set of local economic and community factors affecting non-farm entrepreneurship or self-employment than have previously been considered. These factors affect both the rates of and returns to self-employment in US counties. Counties in which more residents voted for the Republican presidential candidate in 2000 had higher rates of self-employment and returns to self-employment in these counties also were higher. This result is attributed to a stronger entrepreneurial spirit and fewer rules and regulations to thwart self-employment efforts. While the presence of Wal-Mart stores depresses self-employment rates it may also raise the returns to self-employment. This supports the Schumpeterian prediction of creative destruction whereby the surviving self-employed are more productive as a result of competitive pressures. Local business service providers allow the self-employed to out-source non-core functions, raising their profitability. Temporary help and child daycare services are associated with both higher rates of self-employment and greater returns. Childcare services are not typically viewed as a constraint to expanded entrepreneurship but warrant greater attention. Couriers and messengers, and office supply and stationary stores are associated with significantly higher earnings from self-employment. The presence of junior colleges; business schools and computer and management training establishments; and technical and trade schools is associated with higher returns to self-employment. An opportunity clearly exists for expanding the roles of colleges, universities and professional schools in stimulating local rates of and returns to entrepreneurship.