Who Becomes a Business Owner in High-inequality Regimes? The Conditioning Effect of Economic Inequality on the Impact of Individual Educational and Financial Endowment on Entrepreneurship

Abstract

Research has shown that individual educational and financial endowments are key indicators of their potential for entrepreneurial entry and success. At the same time, scholars have shown that economic inequality undermines educational development while increasing financial precarity. Yet, we know little about the extent to which economic inequality may condition how education and income affect an individual’s entrepreneurial experience. In this article, we present a mixed-effect analysis using data from 50 countries that shows that economic inequality diminishes the importance of an individual’s education and income on entrepreneurial entry. This effect is larger for higher education and income individuals than those in the bottom of the educational and income strata. In addition, inequality increases the likelihood that an individual would undertake entrepreneurial activities as a last resort, particularly individuals in low-education strata. These results suggest that under high-inequality regimes, entrepreneurship may be a sign of economic insecurity and inefficiency, and highlight the need for scholars to pay greater attention to understanding the structural forces that facilitate entrepreneurship development.

The Impact of Economic Inequality on Entrepreneurship: Does a Society’s Stage of Development Make a Difference?

“…Thus, building on this study’s findings, future research may further improve our understanding of the entrepreneurial process by examining the extent to which inequality influences the failure rate of entrepreneurial activities in a society, and the degree to which development may moderate this effect. Furthermore, research has established that individual personal characteristics, such as human and financial capital, shape people’s potential for entrepreneurial entry and success (Aldrich and Yang 2014; Auguste 2020; Kim, Aldrich, and Keister 2006). Building on the finding of this paper, future research may improve our understanding of the conditions under which individual qualities may promote entrepreneurial development and success.…”

“…The supply-side approach sees inequality as a precondition for entrepreneurship on the premise that income and wealth inequality creates a class of people wealthy enough to absorb the high risks associated with investing in new ventures and products (Atems and Shand 2018; Bylund 2016; Jones and Kim 2018; Packard and Bylund 2017). In contrast, the demand-side argument claims that by increasing the budget-constrained population and reducing social mobility, inequality reduces both the economy’s purchasing power and the human and financial capital endowments necessary for business creation and success (Auguste 2020; Gutiérrez-Romero and Méndez-Errico 2017; Perry-Rivers 2016; Xavier-Oliveira, Laplume, and Pathak 2015).…”