Liquidity Constraints, Household Wealth, and Entrepreneurship Revisited

28 Pages Posted: 4 May 2012

See all articles by Robert W. Fairlie

Robert W. Fairlie

University of California, Santa Cruz - Department of Economics; National Bureau of Economic Research

Harry A. Krashinsky

University of Toronto - Centre For Industrial Relations

Multiple version iconThere are 3 versions of this paper

Date Written: June 2012

Abstract

The existence of liquidity constraints for entrepreneurs has been challenged by the finding that business entry rates are invariant throughout most of the asset distribution and increase dramatically only at the top of this distribution. We reexamine the liquidity constraint hypothesis in three ways. First, we separately examine those who do and those who do not experience a job loss to reveal generally increasing entry rates through the wealth distribution for both groups, and show why these groups should be separately analyzed. Second, we use a two‐period simulation of the Evans and Jovanovic model to shows how exogenous wealth shocks can accurately identify the presence of liquidity constraints. Third, we provide new evidence from matched Current Population Survey data to show that housing appreciation measured at the MSA‐level is a significantly positive - determinant of entry into self‐employment, after controlling for changes in local economic conditions.

Keywords: entrepreneurship, liquidity constraints, housing wealth, self‐employment

JEL Classification: J01

Suggested Citation

Fairlie, Robert W. and Krashinsky, Harry A., Liquidity Constraints, Household Wealth, and Entrepreneurship Revisited (June 2012). Review of Income and Wealth, Vol. 58, Issue 2, pp. 279-306, 2012, Available at SSRN: https://ssrn.com/abstract=2050782 or http://dx.doi.org/10.1111/j.1475-4991.2011.00491.x

Robert W. Fairlie (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Department of Economics
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HOME PAGE: http://people.ucsc.edu/~rfairlie/

National Bureau of Economic Research ( email )

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HOME PAGE: http://www.nber.org/people/robert_fairlie?page=1&perPage=50

Harry A. Krashinsky

University of Toronto - Centre For Industrial Relations ( email )

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Toronto M5S 2E8
Canada
(416) 978-5696 (Phone)

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