Entrepreneurship as a Pathway to the American Dream

Summary of Study

Bottom Line:Empowering lower-income entrepreneurs is an essential tool for reducing poverty. There is a strong connection between a healthy entrepreneurial sector and an improvement in the incomes for the lowest-income households in the country. Policymakers should prioritize creating a policy environment that supports entrepreneurial innovation by reducing unnecessary obstacles that make it more difficult for low-income individuals to pursue entrepreneurial opportunities.

Evidence suggests that entrepreneurship is a viable alternative to wage and salary employment (or unemployment) for many low-income people. People of color have consistently used entrepreneurship to better their circumstances. Black entrepreneurs have 12 times more net worth than their peers who work for an employer, and their donations of time, money, and services to their communities further strengthen their neighborhoods. Immigrants, as detailed by the Kauffman Foundation, have been especially successful in raising their standards of living through entrepreneurship, starting businesses at roughly double the rate of the population at large. 

When policies increase the barriers to entrepreneurship, the health of the small business sector worsens, and the economic improvements for the lowest-income households stagnate. The opposite is the case when policies decrease the barriers to entrepreneurship. Due to this connection, creating an entrepreneurially friendly policy environment should be a top economic policy priority.

Vibrant entrepreneurial sectors benefit the lowest income households both directly and indirectly. The entrepreneurial economy directly benefits low-income families by creating a valuable pathway for these families to obtain a more prosperous future. It indirectly benefits low-income families by promoting an economic environment that creates more job opportunities, increases overall wages, and expands the affordability of goods and services. 

Overtaxation, overregulation, and lack of access to credit are three of the biggest barriers holding back lower-income individuals from entrepreneurship. 

It is difficult, time-consuming, and costly for most entrepreneurs to comply with the complex array of federal and state regulations and file federal income taxes. Small businesses regularly complain about the onerous burden created by regulations and the tax system. Low-income entrepreneurs have also been disproportionately affected by recent federal credit restrictions, walling them off from the lifeblood of entrepreneurship. 

Policymakers should deregulate, simplify the tax code, and improve access to credit in order to expand entrepreneurship which would have a meaningful impact in reducing poverty. 

Read the full study HERE

 

 

Feature Charticle

Net Establishment Entry Rates for Small Businesses with 1 to 4 Employees

Pacific Research Institute

Findings:

  • There are several disappointing long-term entrepreneurship trends, including the net entrance rate of new small firms, which has generally been declining. 

  • The entrepreneurship decline over the past decade or so has led to an estimated shortfall of anywhere from 867,000 to 4.8 million businesses. 

  • Given the significant benefits of entrepreneurship for lower-income families, policymakers should address this long-term declining rate of new business creation by minimizing unnecessary obstacles that inhibit entrepreneurial opportunities.

Read the full study HERE