by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
I’ve been reading a very important study entitled “Bootstraps Tangled in Red Tape: How State Occupational Licensing Hinders Low-Income Entrepreneurship.” I noticed that the author, Stephen Slivinski, is a senior research fellow at the Center for the Study of Economic Liberty at Arizona State University. A university center — like the 200-plus we have in North Carolina.
The subject matter specifically addresses the ostensible subject area of the late unlamented Center for Poverty, Work, and Opportunity. But as demonstrated ad nauseam by the center and its two self-promoting former leaders, and as catalogued in part here, that center would never ever have put out something as on point and practical as this study in addressing a vital policy matter to help fight Poverty while promoting Work and Opportunity.
This study relied on academic research to discuss the importance of entrepreneurship and freedom in fighting poverty (as I urged the poverty center to do the day its formation was announced). Here is a sampling from its section on “How Entrepreneurship Helps Low-Income People”:
… one of the most important lessons from the past 20 years is how entrepreneurial activity offers an avenue out of poverty for many. As decades of studies show, entrepreneurs can be extremely effective in fostering local job creation and driving economic growth.
Such cases are often found in low-income areas and immigrant communities. As Federal Reserve Bank of Kansas City economist Kelly Edmiston writes:
“Entrepreneurship may yield a double dividend in low and moderate income communities. Many of the retail and services establishments available in higher income areas, such as grocery stores, often are not available to low and moderate income people … [who also] face transportation challenges. Entrepreneurial activity not only provides income to the entrepreneurs and perhaps others in the community, but also provides needed goods and services.”
Some studies have noted that large shares of entrepreneurs are centered in industries that rely on low-wage workers—often the type of workers who find themselves below the poverty line, making those potential workers the most likely new hires for an entrepreneur. …
University of Michigan’s Panel Survey of Entrepreneurial Dynamics indicates that 38 percent of “nascent entrepreneurs,” defined as those actively involved in the creation of new business ventures, live in low- and moderate-income areas. And around 45 percent of those live in low- income neighborhoods. In total, about 8 percent of “nascent entrepreneurs” live in households with below-poverty-level income.
It is for these classes of families that entrepreneurial endeavors are the most important. Evidence of how entrepreneurship can be a ladder out of poverty comes from the Aspen Institute. Researchers there conducted a five-year survey in the mid-1990s, following more than 1,500 low-income entrepreneurs across the nation. Close to three-fourths (72%) of those low-income entrepreneurs experienced an increase in their household income between $8,000 and $22,374. Their household assets increased by an average of more than $15,000 over five years. Perhaps most impressive, more than half (53%) had moved out of poverty in five years. Additionally, those who were on welfare before becoming entrepreneurs were able to generate enough income on their own that, on average, the amount of public assistance they accepted declined by 61 percent.
Economists have also tracked upward income mobility among low-income entrepreneurs and found the same general result. A seminal study published by the National Bureau of Economic Research in 2000 tracked the placement of low-income entrepreneurs in the income distribution over time. The authors concluded that, “in the sample as a whole, for individuals who began toward the bottom of the earnings distribution, continuous experience with self- employment was a successful strategy for moving ahead (relative to wage- earners), both in the short- and long-term.”