2016/07/28 by Yong Suk Lee · 1 citation
Economics, Econometrics and Finance · #Regional Economics and Spatial Analysis #Housing Market and Economics #Spatial and Panel Data Analysis #Entrepreneurship #Payroll #Metropolitan area #Economics #Spillover effect #Labour economics #Wage #Wage growth #Instrumental variable #Econometrics #Macroeconomics #Geography
paper · pdf · doi:10.1093/jeg/lbw021
openalex publication_date 2016/07/28 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
Does entrepreneurship cause local employment and wage growth, and if so, how large is the impact? Empirical analysis of such a question is difficult because of the joint determination of entrepreneurship and economic growth. This article uses two different sets of variables—the homestead exemption levels in state bankruptcy laws from 1975 and the share of metropolitan statistical area (MSA) overlaying aquifers—to instrument for entrepreneurship and examine urban employment and wage growth between 1993 and 2002. Despite using different sets of instrumental variables, the ranges of two-stage least squares estimates are surprisingly similar. A 10% increase in the birth of small businesses increases MSA employment by 1.3–2.2%, annual payroll by 2.4–4.0%, and wages by 1.2–2.0% after 10 years. Furthermore, an accounting exercise shows that the employment and payroll growth from entrepreneurship are not confined to the initially created businesses but spillover to the aggregate urban economy.