Abstract
Measuring entrepreneurship presents both significant challenge and opportunity. Measuring Entrepreneurial Businesses highlights both and effectively lays out the state of the art in measurement and promising gaps for future development.
The volume editors and coauthors demonstrate the necessity of taking heterogeneity into account in order to understand entrepreneurship, and they showcase a wide range of relevant data, including data from national statistical agencies, administrative data sources, private sources, and linked multi-source data.
Policymakers seek economic gains from entrepreneurship, and the nature of this challenge is itself characterized by the heterogeneity of the firms. John Haltiwanger, Ron Jarmin, Robert Kulick, and Javier Miranda add to the existing body of knowledge on the importance of young firms in producing such gains. Specifically, using data from the Longitudinal Business Database (U.S. Census Bureau), they find that approximately 12% of firms account for half of gross output creation among continuing firms, and that 17% of firms account for 60% of gross job creation. They also highlight the importance of heterogeneity by industry: Their disaggregated findings show that growth firms account for as much as 40% of aggregate employment and output growth in some industries but close to zero in others.
A basic question considers heterogeneity of the entrepreneurs themselves. Erik Hurst and Benjamin Pugsley make the important point that preferences of business owners are often ignored by the existing research, and they create a model of small business entry in which selection is on the nonpecuniary benefits of ownership. Victor Manuel Bennett, Megan Lawrence, and Raffaella Sadun consider whether founder CEOs make good managers. Also focused on the entrepreneur is the chapter by Sari Pekkala Kerr and William Kerr, which uses the Longitudinal Employer-Household Dynamics data to study nuance in immigrant entrepreneurship across cohort, firm size, and industry, as well as age at time of immigration.
In addition to the realities of heterogeneity among entrepreneurs and their firms, their responses to a variety of factors in the external environment can vary widely, including their perceptions and realities at various stages in the entrepreneurship process. Rebecca Zarutskie and Tiantian Yang find that a greater percentage of firms did not apply for a loan during the Great Recession than those that did, and Arthur Kennickell, Myron Kwast, and Jonathan Pogach report that new firms were considerably more likely to report unfulfilled credit needs than were established firms.
This heterogeneity is also relevant in the regulatory, policy, and institutional contexts that can affect entrepreneurship outcomes. For example, Johan Hombert, Antoinette Schoar, David Sraer, and David Thesmar study a 2003 change in French Unemployment Insurance eligibility that allowed collection of benefits while starting a business and found that it led to an increase in entrepreneurship in France. Notably, they observe that this change did not lead to a decrease in the achievement of entrepreneurs, as measured by using long-run survival and employment data. J. David Brown, John Earle, and Yana Morgulis find that the Small Business Association’s (SBA) two major loan programs—the 7(a) and the 504—have strong employment growth and survival effects on start-ups, but that these effects diminish by firm age. They find survival effects decrease with firm size whereas the employment effect increases with firm size. Their analysis suggests differential impacts of loans targeted at young firms and/or large firms than those targeted at small, mature firms, which account for a substantial fraction of all SBA loans. Both of these chapters provide content relevant to practitioners and insights on very specific dimensions of rich and varied institutional contexts. Heterogeneity in the institutional and regulatory frameworks across countries and regions represents a large and growing agenda in the existing research on the determinants of entrepreneurship.
Measuring Entrepreneurial Businesses highlights the variety of state of the art approaches and opportunities for future measurement of entrepreneurship. Collectively, the chapters in the book offer a deeper look at entrepreneurship as well as inspiration for future researchers grappling with the trade-offs of measurement. Although challenges arise from disaggregating the process, type, and impact of entrepreneurs, the chapters in this book demonstrate how valuable this endeavor can be in providing useful insights for interventions. One example in the book—and there are many others—comes from the discussion by Christopher Goetz, Henry Hyatt, Erika McEntarfer, and Kristin Sandusky on methods to link employer–employee data. Such links would allow tracking of individuals who move in and out of wage employment and entrepreneurship and could indicate the degree to which workers engage in both wage labor and non-employer business activities simultaneously. These data could support analysis that generates meaningful information about labor market behavior in the gig economy, the appropriateness of demand-side or supply-side interventions to support entrepreneurship, and the changing nature of risk perceptions and effects.
We identify a few key takeaways from this book. While heterogeneity certainly creates constraints and muddies the water for researchers, the book highlights a wide range of appropriate techniques and levels of question and analysis. At the same time, the data landscape and research infrastructure are fractured but comprise administrative, survey, private, and alternative data with varied topical coverage, quality, universality, and accessibility. For example, the chapter by Kennickell, Kwast, and Pogach points to the challenge in disentangling self-employment and business ownership. Kerr and Kerr discuss how to identify the appropriate unit when firm and establishments are linked in administrative data. Steven Kaplan and Josh Lerner outline several private sources of private equity data, noting the biases that may accompany them.
Taken together, heterogeneity in the context of a fractured data landscape opens up exciting next directions for researchers and offers tremendous potential for such research to be actionable and policy-oriented. For example, Jorge Guzman and Scott Stern point out the difficulty of measuring variation from the time of founding, and they offer placecasting and nowcasting as potential methods to remedy measurement constraints driven by heterogeneity.
Note that many of the richer data sets used in the book require restricted access approvals and permissions or funds to obtain private data. This constraint underscores a challenge for future efforts in building data systems and infrastructure to find ways to respect and uphold privacy standards while still providing researchers access to data. Encouragingly, recent efforts are experimenting with frameworks to do this, for example, by providing secure facilities with multiple levels of data that can be used by application program interfaces (APIs) to pull out specific information in line with privacy standards.
Another takeaway is the difficulty of clarifying trends in entrepreneurship from broader trends shaping the activities of businesses and workers. The embeddedness of entrepreneurship in broader social and economic systems presents a large mandate for researchers. This book highlights contributions from economics and finance, and we consider similarly high-quality efforts from other disciplines as fruitful and complementary efforts.
To continue efforts to obtain a complete picture of entrepreneurship, we consider that the aggressive pursuit of both multilevel and multidimensional measurement can advance many of the research pathways that emerge from the book. A foundational question continues to focus on who becomes an entrepreneur, including individuals who may be engaged in economic activities in addition to working on their firm. The trajectory of the business after entry—in terms of employment, revenue, and profitability growth, as well as survival—raises important questions with significant relevance. Similarly, research on the observable and unobservable characteristics of both individuals and firms can provide insight on the life cycle of entrepreneurship.