Launching with a Parachute: The Gig Economy and Entrepreneurial Entry

Abstract

The introduction of the gig economy creates opportunities for would-be entrepreneurs to supplement their income in downside states of the world, and provides insurance in the form of an income fallback in the event of failure. We present a conceptual framework supporting the notion that the gig economy may serve as an income supplement and as insurance against entrepreneurial-related income volatility, and utilize the arrival of the on-demand, platform-enabled gig economy in the form of the staggered rollout of ridehailing in U.S. cities to examine the effect of the arrival of the gig economy on entrepreneurial entry. The introduction of gig opportunities is associated with an increase of ~5% in the number of new business registrations in the local area, and a correspondingly-sized increase in small business lending to newly registered businesses. Internet searches for entrepreneurship-related keywords increase ~7%, lending further credence to the predictions of our conceptual framework. Both the income supplement and insurance channels are empirically supported: the increase in entry is larger in regions with lower average income and higher credit constraints, as well as in locations with higher ex ante economic uncertainty regarding future wage levels and wage growth.

Informing Entrepreneurs: Public Corporate Disclosure and New Business Formation

“…We proceed to explore whether increases in information from the IPOs lead individuals to consider the possibility of launching a business, even if they do not eventually choose to launch one. To do so, we measure entrepreneurial interest (expression of interest in entrepreneurship) using google searches for terms related to entrepreneurship, such as "how to start a business" or "how to incorporate" (Barrios et al, 2020). Consistent with our prior findings, the D.D.…”

“…The outcome variable, High Entr Search Share, is an indicator variable that is defined as one in the case that the DMA is in the top quartile of entrepreneurial search intensity in that quarter. We measure entrepreneurial search intensity using internet searches for terms and phrases directly related to launching a business as in (Barrios et al, 2020…”

“…We have so far documented a positive link between our public firm disclosure proxies and business formation. We now turn to a measure that captures the general interest of business formation more broadly: internet searches for terms and phrases directly related to launching a business-entrepreneurial interest (Barrios et al, 2020). 5 This measure provides us with a timelier response to information spillover from the IPO by examining whether the exposure to the new firm's disclosures leads individuals to begin contemplating entrepreneurship.…”

“…Specifically, we use the terms: "start a business," "start your own business," "start a company," "how to incorporate," "entrepreneurship," "become an entrepreneur," and "small business loan." See Barrios et al (2020) for more details.…”

“…Next, we examine a case where public firm information may be more valuable to entrepreneurs: locations where economic uncertainty (and in turn, entrepreneurial income uncertainty), is higher. 6 We operationalize the economic uncertainty proxy by constructing a measure of the volatility in wage growth in each county (Barrios et al, 2020). 7 We utilize data from the Bureau of Labor Statistics (BLS) Quarterly Census of Employment and Wages (QCEW) for this purpose.…”