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

Conceptual Models 22 a. Proprietorship formations and returns to proprietorships 23 Individual-level factors 24 County-level factors 25 b. Impact of proprietorship formations 29 Extended 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. In the county-level regression analyses, individual-level socio-demographic variables capture the characteristics of the population pool from which the self-employed are drawn. These individual-level factors are distinguished from local county characteristics that affect self-employment or proprietorship formations. Some of the latter variables are subject to policy influence while others serve as controls that are not easily changed. While the literature on self-employment or proprie-torship formations is sizeable, empirical research on the returns to self-employment is virtually non-existent. A major contribution of the present study is to reveal why the returns to self-employment vary over space. Counties with older, more highly-educated and wealthier populations also had higher self-employment rates, as predicted. Likewise, counties with more foreign-born populations and greater ethnic diversity have higher rates of self-employment, but higher foreign born shares are associated with lower earnings from self-employment. These results likely reflect a combination of cultural factors as well as labor market discrimination on the one hand, and greater tolerance for newcomers, on the other. College completion conveys no earnings advantage to the self-employed and having a high school but no college degree entails an earnings penalty relative to not having completed high school. Greater wealth and access to capital raise the returns to self-employment while the effect of experience on earnings follows an inverted-U, reaching a maximum at age 37. Greater reliance on federal welfare payments in the population is associated with higher self-employment rates but lower returns to self-employment. 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 " in these counties and fewer rules and regulations to thwart self-employment efforts. Results for the effects of creative class-type variables are mixed. Patent activity leads to more self-employment but not to higher earnings. The presence of art dealerships is associated with higher self-employment rates (weakly) and earnings while musical instrument supply stores are associated with lower …