Lower Earnings are driving down the Number of Entrepreneurs

I was reminded of that principle the other day when I was preparing to teach an introduction to microeconomics class and was looking at data on what has happened to entrepreneurial activity in the United States since the Great Recession. Economic theory predicts that fewer people will go into and stay in business for themselves if running one’s own company becomes less lucrative than it used to be. That’s precisely what has happened over the past six years.

Data from the Federal Reserve’s Survey of Consumer Finances reveals that the income of the typical family headed by a self-employed person dropped from $85,000 in 2007 to $70,800 in 2013 when measured in inflation-adjusted terms. The nearly 17 percent drop in the income of self-employed families was more than double the fall in earnings of wage-employed families, indicating Americans have had a strong financial incentive to shift out of entrepreneurship over the past six years.

Lower Earnings are driving down the Number of Entrepreneurs