Association for Public Policy Analysis & Management

This research examines the role of wealth in starting a business. We focus on whether wealth inequality limits the growth of entrepreneurship for older workers. Entrepreneurship has become especially pronounced among older households, while entrepreneurship among younger households declined.

This disproportionate entrepreneurship growth among older households has coincided with rapidly rising wealth for a subset of households. More wealth may have increased the amount of collateral that these households could use to start and expand businesses. And, more wealth may have also made it easier for households to diversify their risky business income with capital income. Increased wealth may have opened a path to more entrepreneurship akin to expanded social insurance on self-employment by somewhat limiting the risks associated with starting one’s own business.

But, wealth inequality among older households has also risen.  Increasing wealth inequality can limit access to collateral and income diversification for many households and thus impede would-be entrepreneurs.

It is possible that factors other than wealth matter for older entrepreneurship and that rising wealth inequality does not impede entrepreneurship. Both unemployment rates and long-term unemployment, for example, have risen faster for older workers than for younger ones, while the need to work longer due to higher life expectancies and a growing lack of savings has also grown, often leaving households inadequately prepared to maintain their standard of living in retirement. Older entrepreneurship may have consequently grown as more older households moved into self-employment to save more amid weakening labor market conditions.

We consider in particular whether income diversification from private sources, most notably capital income, plays a significant role in determining older entrepreneurship.