Employment Risk, Returns, and Entrepreneurship

Abstract

Comparing local employment portfolios against entrepreneurship, this research finds that local wage and salary job market prospects shape incentives for potential entrepreneurs. Entrepreneurship may thus be more attractive in areas featuring high employment risk and/or low returns. This research contributes to the existing regional employment portfolio literature by using more disaggregated data at both the county and the commuting zone levels. Commuting zones in particular represent a broader spectrum of labor market agglomerations across both rural and urban areas to provide the most stringent and revealing tests of the interrelationship between local employment portfolios and the choice to pursue entrepreneurship. The authors find a U-shaped risk/return trade-off using employment variance and growth, consistent with the literature. They test their hypothesis with a model of regional entrepreneurship, incorporating the employment portfolio variables. This is the first known study to explore the hypothesized relationship between wage and salary employment portfolios and entrepreneurship, effectively synthesizing two previously disparate literatures.