Does Entrepreneurship Affect Income Inequality within Countries? Direct and Indirect Effects in European Countries

Abstract

The objective of the article is to verify the direct and indirect impact of entrepreneurship on income inequality within countries. Inequality has long been a problem for people, which appears as a consequence of unequal access to and distribution of wealth. The article implements the perspective of entrepreneurship into the discussion on inequality. Research Design & Methods: The research method is quantitative. Based on panel data of 26 European countries in years 2008-2018, regression functions are estimated to verify research hypotheses. Findings: The direct influence of entrepreneurship measured by birth rate, death rate, and survival rate on inequality seems to be quite limited. However, the most important relationship is indirect impact through employment creation, which seems to reduce income inequality, especially regarding the employment of surviving companies. Implications & Recommendations: The employment share of surviving companies is an important variable that reduces income inequality; the entrepreneurship policy should concentrate on supporting the survival of newly created companies, not just on the start-up process. Contribution & Value Added: The novelty of the article is to implement the distinction between direct and indirect impact of entrepreneurship. The process of new company creation affects not only incomes of entrepreneurs but most importantly the indirect reduction of income inequality through employment. Moreover, the article sheds new light on the matter of inequality by the incorporation of time lag into analyses. Article type: research article

Testing Unemployment–Entrepreneurship Nexus in Namibia Using the Schumpeterian Approach

“…As unemployment rises above the equilibrium, unemployed people begin to venture into entrepreneurial activities from point E to point A. For that reason, new businesses start to penetrate the market and business formation increases above the equilibrium from point E to point B, which demonstrates the refugee effect [10,12,[23][24][25]. Due to an increase in business formation, unemployment reduces below the equilibrium level from point E to point C, which illustrates the Schumpeter effect [12][13][14][29][30][31]33,47].…”

“…For that reason, new businesses start to penetrate the market and business formation increases above the equilibrium from point E to point B, which demonstrates the refugee effect [10,12,[23][24][25]. Due to an increase in business formation, unemployment reduces below the equilibrium level from point E to point C, which illustrates the Schumpeter effect [12][13][14][29][30][31]33,47]. However, over time, the market becomes saturated to the extent that business formation reaches the maximum point of acceleration and begins to diminish, as shown at point B, while unemployment keeps declining until it becomes exhausted over time, where it starts to pick up, as indicated at point C. Overall, the model demonstrates that the relationship between entrepreneurship and unemployment is short-run, where entrepreneurship can only address the issue of unemployment in the short run.…”

“…While unemployment can devastate macroeconomic performance [10], it cannot always be viewed as an obstacle to economic growth in such a manner that it encourages people to venture into business activities. As they grow, they can create more jobs and eventually reduce unemployment [11,12]. However, such businesses suffer various impediments, mainly those associated with funds, which hinder their ability to grow and serve to that effect [10].…”

Self-employment and over-indebtedness in Poland: Modelling income and debt repayments distribution

“…However, the impact of self-employment on income is more complex. Entrepreneurship has an indirect impact through employment creation, which seems to reduce income inequality, especially in regard to surviving companies (Gaweł, 2020).…”

Nascent entrepreneurs of millennial generations in the emerging market of Indonesia

“…The Global Entrepreneurship Monitor (GEM) defines three dominant reasons or motives why individuals participate in start-ups (Chadha & Dutta, 2020): High-expectation Entrepreneurship Activity (HEA) conveys all start-ups and newly formed businesses, Opportunity Entrepreneurship Activity (OEA) gathers individuals who perceive a business opportunity and start a business as one of several possible career options, and Necessity Entrepreneurship Activity (NEA) comprises individuals that see entrepreneurship as their last resort and start a business because all other work options are either non-existent or unsatisfactory. Previous research indicated that countries with low per-capita income have high nascent entrepreneurship rates, as do countries with high per-capita income (Erkut, 2016;Gaweł, 2020). Since the emerging market of Indonesia undergoes transition to a developed country, the characteristics and motivations of millennial entrepreneurs to create entrepreneurial start-ups (whether OEA or NEA) must be well understood by policymakers so as to formulate a proper strategy for economic growth through entrepreneurship.…”