How to make more entrepreneurs-

Want more entrepreneurs?

Make college cheaper.

It’s a simple idea that was recently investigated in a working paper by Harvard Business School economist Gareth Olds.

According to Olds, fewer American parents take the plunge into entrepreneurship when college tuitions rise. Olds found that a 10% increase in the average price of in-state college tuition corresponds with a 13.9% decrease in the number of parents with college-age children who become self-employed. The effect is strongest for parents with multiple children and holds up even after controlling for factors such as state economic conditions.

At the same time, Millennials (i.e. students and young professionals) are facing significant financial challenges that may be making it more difficult for them to start their own businesses. Based on a Wall Street Journal analysis of Federal Reserve Data, the share of people under 30 who own a business has fallen by 65% since the 1980s and is now at a quarter-century low. As John Lettieri, co­-founder of the Economic Innovation Group, testified in July of this year before the U.S. Senate, “Millennials are on track to be the least entrepreneurial generation in recent history”.

Olds’ research has significant policy implications. Cheaper tuition could give more students access to education, but also it would free more parents to take risks by launching new companies. Ultimately, people are much more willing to take an entrepreneurial risk when they have some sense of financial security and stability.

 

This post first appeared in TINAN 73. Subscribe to TINAN for the latest economic development news and resources.