Dr. Winslow Sargeant is the sixth Chief Counsel for Advocacy of the U.S. Small Business Administration’s Office of Advocacy, appointed by President Obama August 19, 2010. The Office of...
Entrepreneurial Origins: A Longitudinal Inquiry
United States Small Business Administration
Office of Advocacy
Successful entrepreneurs have backgrounds and characteristics that distinguish them from both unsuccessful entrepreneurs and the larger group of nonentrepreneurs. This study is an extension of earlier research performed for the Office of Advocacy that was also based on the personal experiences of 12,000 young individuals during the 1980s. This new study, however, adds the experiences of entrepreneurship entry and exit of young entrepreneurs by gender, race and educational background.
On the basis of the data provided, different strategies are needed to develop entrepreneurship among men and women. Young entrepreneurs have characteristics that distinguish them from young nonentrepreneurs. Profiles of successful and unsuccessful entrepreneurs are quite distinctive, as are gender differences, as determinants of entrepreneurial supply and later performance.
Scope and Methodology
The data source for this study is the National Longitudinal Survey of Youth (NLSY), the successor to the National Survey of Young Men (NSYM). The NLSY is a weighted cross section of more than 12,000 young men and women between the ages of 14 and 23 in 1979. Since 1979, the individuals have been reinterviewed annually, with a cumulative sample retention rate of close to 90 percent. The author combines the experiences of these individuals over a decade (1979-1990) with a crosssectional analysis of entry into selfemployment in 1990.
Because the NLSY presently covers only the early stages of the worklife cycle - up to age 37 in 1991 - entrepreneurial activity commencing at later ages cannot be identified, nor can the NLSY measure continuing performance of established entrepreneurs beyond that age. Accordingly, this limitation will tend to exclude later entrepreneurial initiatives and may understate female entrepreneurship. (Women typically become entrepreneurs later in life than do men, although recent surges in female entrepreneurship have decreased this difference.) This research identified 212 males and 163 females as entrants into selfemployment in 1990, representing 3.7 and 2.8 percent of the respective gender subpopulations.
- Attempts at selfemployment are common among young men and women. More than 1 out of 4 young men and 1 out of 5 young women became selfemployed during the 1980s. A total of 375 selfemployed entrants were identified in 1990 as individuals who were exclusively wage earners in the two preceding years and reported some selfemployment in 1990. There were 212 male entrants (representing 3.7 percent of the gender subpopulation) and 163 female entrants (representing 2.8 percent of the female subpopulation). Female entrepreneurial entrants were overwhelmingly engaged in services industries (70 percent). Male entrants were likely to be in the construction trades (28 percent), wholesale and retail trade (15 percent), and manufacturing (14 percent).
- Based on the profile of the 1980s, the experience of the youthful entrepreneurs is very limited, with a mean exposure of 2.2-2.7 years. However, 38 percent of the men and 30 percent of the women with entrepreneurial experience report engaging in such activity for at least 3 years. This period consitutes a substantial portion of their brief labormarket history. However, few of these young entrepreneurs attain abovemedian incomes: 8 percent of the females and 21 percent of the males had selfemployment incomes above $15,000 - the median income of NLSY wage earners in 1989.
- There are a variety of significant influences on entrepreneurial supply by gender and race. Role models and selfassurance are critical to the supply of female entrepreneurs. Young men have a tendency to accumulate some market experience before attempting to become selfemployed. Whites are much more likely than blacks or Hispanics to become entrepreneurs. Neither education nor measured intelligence is a significant correlate of selfemployment.
- Correlates of female selfemployment are similar to those of males, with a few significant exceptions. Although the sense of control is significant for both, it is five times larger in quantitative influence for women than for men, suggesting that a higher threshold of selfassurance is needed before young women take the entrepreneurial plunge. Having a mother with managerial experience is a major influence on a young woman's decision to become selfemployed; in contrast, a mother's occupation has no effect on young men, and a father's occupation has no effect on either men or women.
- Marriage has starkly differing effects on entrepreneurship by men and women. Although marriage reduces the probability of selfemployment for young men, it substantially increases the probability of selfemployment for <%2>women. This supports the traditional view of the family <%0>in which the husband's primary employment enables the wife to pursue riskier secondary employment. Divorce reverses such prospects, given increased childcare responsibilities and reduced per capita income faced by women. Although marriage is a negative influence on entry into selfemployment for men, it is positively correlated with entrepreneurial success for both genders.
- Gender differences also exist in the education and experience levels of those studied. Women with higher education levels and more work experience are less inclined to attempt entrepreneurship, suggesting that young women entering selfemployment generally have small stocks of human capital and thus diminished prospects for success.
- High exit rates reduce the total number of people engaged in selfemployment at any one time. A total of 28.5 percent of all men and 20.7 all percent of women had engaged in selfemployment during the 1980s. By contrast, the proportions of selfemployed in a single year at the end of the observation period (1989) were only 10.6 percent and 7.7 percent, respectively. As the high exit rates imply, success is limited among youthful entrepreneurs. In addition, only 1 in 5 male and 1 in 12 female entrepreneurs earned an income in excess of median wages in any year; success is gauged by an annual selfemployment income above $15,000 - the median income of NLSY wage earners in 1989. Successful male entrepreneurs are more likely to be married and collegeeducated. For women, age and work experience are the dominant predictors of success.
The complete report is available from:
National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield, VA 22161
(703) 487-4639 (TDD)
Order Number: PB95187373
Cost: A03; A01 Microf.
*Last Modified 6-11-01