Who Gains From Creative Destruction? Evidence From High-Quality Entrepreneurship in the United States
October 2019
Working Paper Number:
CES-19-29R
Abstract
The question of who gains from high-quality entrepreneurship is crucial to understanding whether investments in innovative startup firms produce socially beneficial outcomes. Although entrepreneurship is widely viewed as a central driver of economic growth, recent research has raised concerns that it may also exacerbate inequality and other undesirable social outcomes. We bring new evidence to this debate by analyzing the impact of entrepreneurship on a variety of local economic outcomes, including income inequality, average incomes, and income mobility, using IRS and U.S. Census Bureau microdata. We find that entrepreneurship indeed increases income inequality, although this effect fades over time. While entrepreneurship produces statistically significant income gains across the distribution, the economic magnitude of these effects varies dramatically, with benefits concentrated among top earners. We also find that entrepreneurship serves as an important mobility tool for less well-off individuals, positively increasing their probability of rising to the top of the income distribution. These mobility effects are strong for Asian, Hispanic, and foreign-born individuals, but are less evident among Black individuals.
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