Entrepreneurship as a Response to Labor Market Discrimination for Formerly Incarcerated People

Abstract

This paper examines entrepreneurship as a way to overcome labor market discrimination. Specifically, we examine entrepreneurship as a career choice for formerly incarcerated individuals, a group of individuals who face substantial discrimination in the labor market. Using the United States National Longitudinal Survey of Youth 1997 data, we find that formerly incarcerated people are more likely to become entrepreneurs compared to individuals without a criminal record. We take advantage of an exogenous state and county level policy shock “Ban-the-Box” in the United States to further disentangle the underlying mechanism of how labor market discrimination affects formerly incarcerated individuals in their entrepreneurial choices. The findings suggest that entrepreneurship is a viable alternative career choice for formerly incarcerated people, yielding both higher income and lower recidivism rates. In addition to reporting robustness checks and addressing alternative explanations, we discuss theoretical, empirical, and policy implications.

Keywords: Entrepreneurship, Incarceration, Labor Market Discrimination