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Research shows more small business does not mean more entrepreneurs

Posted January 22, 2014
Research shows more small business does not mean more entrepreneurs
Entrepreneurship rate: Number of billionaire entrepreneurs per million inhabitants, 1996–2010. Credit: PNAS, doi/10.1073/pnas.1307204111
Economists often measure rates of entrepreneurship by looking at the number of small businesses in an industry or a country. However, in a study published in the Proceedings of the National Academy of Sciences, Magnus Henrekson and Tino Sanandaji of the Research Institute of Industrial Economics in Sweden have found that small business ownership is a poor indicator of entrepreneurship. A better measure is the number of billionaires in the market, which correlates negatively with the number of small businesses and startups.

The researchers studied Schumpeterian entrepreneurs, defined as those who bring innovation to their industry and drive new growth. They noted that in the United States, most self-employed people are not entrepreneurs in this sense. Most of the self-employed run small businesses that do not grow. The majority do not have employees of their own. Previous research suggests that only between 10 and 20 percent of small businesses are innovative. The rest, such as landscaping companies, auto repair companies, restaurants, salons and child day care services, merely replicate businesses that already exist.

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