Explaining Self-Employment Success and Failure: Wal-Mart vs. Starbucks, or Schumpeter vs. Putnam

Abstract

Objectives: Two powerful socioeconomic innovations are sweeping the nation, led by Wal-Mart, Inc. and Starbucks Corp. These innovations both affect and are driven by profound labor market changes, but exactly how they affect self-employment or entrepreneurship has not been investigated. We examine the independent effects of these phenomena on the returns to self-employment, which is itself an under-researched topic in labor economics.

Methods: We apply spatial econometric analysis to data from over 3,000 US counties to analyze how big-boxes and drinking places that facilitate social networking, affect self-employment earnings.

Findings: The presence of Wal-Mart stores is associated with higher returns to self-employment, whereas the results for coffee shops and drinking places are mixed. A negative interaction effect on earnings emerges when Wal-Mart stores and drinking places exist in the same county.

Conclusions: We confirm both Schumpeter's and Putnam's assertions about the importance of creative destruction and social networking in raising the productivity of entrepreneurs, although the latter effect is not as clear-cut as the former.

Keywords: entrepreneurship, earnings, creative destruction

JEL Classification: M13