Technical Change and Entrepreneurship

I document a significant decline in the share of entrepreneurs among US households since the mid-1980s. Most of this decline is accounted for by a drop in the share of entrepreneurs among college graduates. Using a dynamic entrepreneurial choice model with two skill groups—high- and low-skill individuals—I then argue that the decline is the outcome of two technological forces that have increased the returns to high-skill labor: skill-biased technical change and the decrease in the price of capital. These two forces account for 4.1 of the 5.0 percentage point decline in the share of entrepreneurs.

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