The Dynamic Relationship Between Entrepreneurship, Unemployment, and Growth: Evidence from U.S. Industries

Jose M. Plehn-Dujowich and Willow Grove, March 2012

Purpose

Entrepreneurship, economic growth, and unemployment are interrelated: exactly how is the subject of this research. Does entrepreneurship lead to economic growth or vice versa? Does entrepreneurship lower unemployment, or does unemployment lead to entrepreneurship? Without the answers to such questions, policymakers may be attempting to treat the symptoms of economic problems rather than devising real solutions for unemployment or slow growth. Moreover, whereas economic growth and unemployment are often the focus of academic and media attention, the importance of entrepreneurship in this triad is often overlooked. The researcher examined ten U.S. industry sectors to determine whether there are “Granger-causal” relationships between entrepreneurship, economic growth, and unemployment.

Overall Findings

In about half of the industries tested, entrepreneurship and growth dampened unemployment, while unemployment spurred entrepreneurship and growth. The results indicate that entrepreneurship may be the spark for economic growth. Although the results are promising, the research shows that the three economic components are intertwined and that it is not consistently clear which component ignites or slows the cycle of entrepreneurship, economic growth, and employment. In many of the industries studied, the results were indeterminate and circular. Support for entrepreneurship can be a key to jumpstarting the economy, however.