Unincorporated, Non-Employer Business Startups Increase During Recessions

From "Entrepreneurs of necessity" post in the Atlanta's Fed Macroblog:

Importantly, [Robert] Fairlie's [Department of Economics University of California] measure of new businesses picks up new nonemployer businesses, many of which are not incorporated.

What is particularly interesting about Fairlie's research is that he shows not only that this measure of entrepreneurial activity has surged, but that it is closely related to movements in local unemployment rates. That is, he has potentially uncovered an "entrepreneur of necessity" effect caused by high unemployment. For many unemployed workers, the benefits of starting a business during a weak economic environment outweigh the costs. It is noteworthy that the largest proportionate increase in this measure of entrepreneurial activity is by people with less than a high school diploma. This group has been especially hard hit by the recession and weak recovery, and it appears that many have responded by starting their own business.

Read the complete Atlanta Fed Blog post here.

Fairlie's research paper is available here.