The Economic Benefits and Costs of Entrepreneurship: A Review of the Research
By C. Mirjam van Praag, Amsterdam Center for Entrepreneurship, University of Amsterdam, The Netherlands and Tinbergen Institute, University of Amsterdam, The Netherlands and Max Planck Institute of Economics, Germany and IZA Institute for the Study of Labour, Germany and University of Amsterdam, The Netherlands, C.m.vanpraag@uva.nl | Peter H. Versloot, Tinbergen Institute, University of Amsterdam, The Netherlands and University of Amsterdam, The Netherlands
Abstract
Many studies in the entrepreneurship literature are motivated by the statement that entrepreneurship has important economic value, for instance, in terms of productivity and growth, employment generation or, innovation. This claim is often substantiated by a reference to (at most) one or two studies finding supporting evidence. However, whether the cited reference was one of the few out of many studies that "happened" to find supportive evidence is not yet clear. This paper examines to what extent recent empirical evidence can collectively and systematically substantiate the claim that entrepreneurs cause important economic benefits. Hence, a systematic review is provided that answers the question: What is the contribution of entrepreneurs to the economy in comparison to non-entrepreneurs? We study the relative contribution of entrepreneurs to the economy based on four measures that have most widely been studied empirically. Hence, we answer the particular question: What is the contribution of entrepreneurs to (i) employment generation and dynamics, (ii) innovation, and (iii) productivity and growth, relative to the contributions of the entrepreneurs' counterparts, i.e., the "control group?" A fourth type of contribution studied is the role of entrepreneurship in increasing individuals' utility levels. Based on 57 recent studies of high quality that contain 87 relevant separate analyses, we conclude that entrepreneurs have a very important — but specific — function in the economy. They engender relatively much employment creation, productivity growth and produce and commercialize high quality innovations. They are more satisfied than employees. More importantly, recent studies show that entrepreneurial firms produce important spillovers that affect regional employment growth rates of all companies in the region in the long run. However, the counterparts cannot be missed as they account for a relatively high value of productivity and growth, a less volatile and more secure labor market, higher paid jobs and a greater number of innovations and they have a more active role in the adoption of innovations.
The Economic Benefits and Costs of Entrepreneurship
The Economic Benefits and Costs of Entrepreneurship examines to what extent recent empirical evidence can collectively and systematically substantiate the claim of the economic benefits of entrepreneurship. The authors review the empirical literature and provide an answer to the question "what is the contribution of entrepreneurs to the economy in comparison to their counterparts?" Using four measures, the authors quantify the economic benefits of entrepreneurs along the following parameters – employment generation and dynamics, innovation, productivity and growth, and the role of entrepreneurship in increasing individuals' utility levels. The Economic Benefits and Costs of Entrepreneurship is the first review of the primary empirical literature in this area. More precisely, it is the first review of high quality economics and management studies, focusing on various types of contributions that entrepreneurs can make to the economy in terms of quantifiable measures and evaluating the entrepreneurs' performance in these areas relative to their counterparts.
