Note: We would like to thank Tom Astebro, Danny Blanchflower, Garth Frazer, Annamaria Lusardi, Rob McMillan, Simon Parker, Harvey Rosen, Herb Schuetze, David Scoones, Alexandra Spitz-Oener, Chris Woodruff, and participants at the NBER Entrepreneurship Workshop, Society of Labor Economists Meetings, and University of Victoria for helpful comments and suggestions. Oded Gurantz provided excellent research assistance.
LIQUIDITY CONSTRAINTS, HOUSEHOLD WEALTH, AND ENTREPRENEURSHIP REVISITED
Article first published online: 18 JAN 2012
© 2012 The Authors. Review of Income and Wealth © International Association for Research in Income and Wealth 2012
Review of Income and Wealth
Volume 58, Issue 2, pages 279–306, June 2012
How to Cite
FAIRLIE, R. W. and KRASHINSKY, H. A. (2012), LIQUIDITY CONSTRAINTS, HOUSEHOLD WEALTH, AND ENTREPRENEURSHIP REVISITED. Review of Income and Wealth, 58: 279–306. doi: 10.1111/j.1475-4991.2011.00491.x
- Issue published online: 2 MAY 2012
- Article first published online: 18 JAN 2012
- liquidity constraints;
- housing wealth;
The existence of liquidity constraints for entrepreneurs has been challenged by the finding that business entry rates are invariant throughout most of the asset distribution and increase dramatically only at the top of this distribution. We reexamine the liquidity constraint hypothesis in three ways. First, we separately examine those who do and those who do not experience a job loss to reveal generally increasing entry rates through the wealth distribution for both groups, and show why these groups should be separately analyzed. Second, we use a two-period simulation of the Evans and Jovanovic model to shows how exogenous wealth shocks can accurately identify the presence of liquidity constraints. Third, we provide new evidence from matched Current Population Survey data to show that housing appreciation measured at the MSA-level is a significantly positive determinant of entry into self-employment, after controlling for changes in local economic conditions.