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Maxwell School

Maxwell Policy Research Symposium

The Department of Economics and the Center for Policy Research of The Maxwell School of Syracuse University have instituted an annual Policy Research Symposium concentrating on a specific area in economics.  Additional funding for this year's symposium was generously provided by the Onondaga County Industrial Development Agency and the Robert Wood Johnson Foundation.

Entrepreneurship and Public Policy 

Maxwell Policy Research Symposium

Center for Policy Research, The Maxwell School, Syracuse University

April 20-21, 2001

The proceedings of this conference have been published as an edited volume by MIT Press.

Craig Perry (Princeton University) and Harvey S. Rosen (Princeton University)  "The Self-Employed Are Less Likely to Have Health Insurance Than Wage-Earners. So What?"

There is considerable public policy concern over the relatively low rates of health insurance coverage among the self-employed in the United States. Presumably, the reason for the concern is that their low rates of insurance lead to worse health outcomes. We use data from the Medical Expenditure Panel Survey conducted in 1996 to analyze how the self-employed and wage-earners differ with respect to insurance coverage and health status. Using a variety of ways to measure health status, we find that the relative lack of health insurance among the self-employed does not affect their health. For virtually every subjective and objective measure of health status, the self-employed and wage earners are statistically indistinguishable from each other. Further, we present some evidence that this phenomenon is not due to the fact that individuals who select into self-employment are healthier than wage-earners, ceteris paribus. Thus, the public policy concern with the relative lack of health insurance among the self-employed may be somewhat misplaced.

Discussant:   Helen Levy, University of Chicago

Robert Fairlie (University of California, Santa Cruz, and Joint Center for Poverty Research, Northwestern University and University of Chicago)    "Does Business Ownership Provide a Source of Upward Mobility for Blacks and Hispanics?"

Academicians and policymakers have argued that self-employment provides a route out of poverty and an alternative to unemployment or discrimination in the labor market. Existing research, however, provides very little evidence from longitudinal data on the relationship between business ownership and economic advancement for disadvantaged minority groups. I use data from the 1979-1998 National Longitudinal Survey (NLSY) to examine the earnings patterns of young black and Hispanic business owners and make comparisons to young black and Hispanic wage/salary workers. Using fixed-effects earnings regressions, I find some evidence suggesting that self-employed Hispanic men experience faster earnings growth than Hispanic men employed in the wage/salary sector. All of the estimated coefficients for this group are large and positive, but only a few are statistically significant. I also find large and positive relative self-employment earnings growth coefficients for black men, but none are statistically significant at conventional levels. The results for black and Hispanic women are less consistent, possibly due to small sample sizes. Finally, I find that minority business owners generally experience more unemployment than wage/salary workers, with the main exception being black male business owners.

Discussant:   Peter Gottschalk, Boston College

Douglas Holtz-Eakin (Syracuse University) and Chihwa Kao (Syracuse University)      "Entrepreneurship and Economic Growth: The Proof is in the Productivity"

Considerable recent attention has been devoted to "entrepreneurship." While entrepreneurship is often viewed from the perspective the individuals’ benefits – an increase in standard of living, flexibility in hours, and so forth – much of the policy interest derives from the presumption that entrepreneurs provide economy-wide benefits in the form of new products, lower prices, innovations, and increased productivity. How large are these effects?

Using a rich panel of state-level data we quantify the relationship between productivity and income growth – by state and by industry – and entrepreneurship. Specifically, we will use state-of-the-art econometric techniques for panel data to determine whether increases in entrepreneurship "cause" (in a statistical sense) subsequent increases in the growth of productivity and standards of living. Also, we will test whether there exists a stable, long-run relationship between entrepreneurship and productivity growth. To the extent that such a relationship exists, it will provide quantitative guidance regarding the benefits policies to enhance entrepreneurship.

Discussant:   Charles Hulten, University of Maryland

Josh Lerner (Harvard University and National Bureau of Economic Research)  "When Bureaucrats Meet Entrepreneurs: The Design of Effective 'Public Venture Capital' Programs"

Within the past few years, public efforts to finance small high-technology firms have proliferated. This article reviews the motivations for these efforts and makes some preliminary observations about their design. It explores the underlying challenges that the financing of young growth firms poses, the ways that specialized financial intermediaries address them, and the rationales for public efforts to finance these companies. The final section makes a set of observations about the ways in which the structure of these efforts can most effectively complement private sector activity. In particular, I highlight that a frequent fault in program design is the presumption that technological criteria can be divorced from business considerations when evaluating firms.

Discussant:   Allan Young, Syracuse University

Sandra Black (Federal Reserve Bank of New York) and Philip Strahan (Federal Reserve Bank of New York and MIT Sloan School of Management)     "Business Formation and the Deregulation of the Banking Industry"

The banking industry has undergone a profound change over the past 25 years as a consequence of technological innovations and deregulation; these changes have created a much more open and competitive banking system. At the same time, large and expansion-minded banks have been able to increase their market share, leading to a dramatically consolidated industry structure at the national level. Building on our earlier research (Black and Strahan 2000), which examined the relationship between competition and consolidation of banking structure and entrepreneurship, we test how these changes have affected lending, and, through this, the rate of formation of new businesses. Our results suggests that policies such as branching and interstate banking reform that fostered competition and consolidation in the banking sector, as well as the associated decline in the importance of small banks, increased lending overall, and that this increase in lending helped entrepreneurs start new businesses.

Discussant:   William M. Gentry, Columbia University

Carolyn Moehling (Yale University) and Richard Steckel (Ohio State University)    "Entrepreneurial Activity and Wealth Inequality: An Historical Perspective"

In the past two decades, the level of wealth inequality in the United States has risen fairly dramatically. Today, the United States has the most unequal distribution of wealth of any industrialized nation. Some policymakers and economists have proposed wealth and estate taxes to reduce the disparities. But opponents argue that such taxes will reduce the incentives for entrepreneurial activity and thereby, reduce economic growth. A key issue in this debate is the relationship between entrepreneurial activity and inequality: to what extent does the unequal distribution of wealth reflect the returns to entrepreneurial activity?

This paper seeks to provide an historical perspective to this debate by examining the relationship between entrepreneurial activity and wealth inequality in nineteenth century Massachusetts. We make use of a unique dataset which links data from the 1820 to 1910 federal censuses to property tax records. Massachusetts during this period experienced rapid industrialization and tremendous economic growth. These changes were accompanied by a dramatic increase in the level of wealth inequality. We begin by using standard inequality measures and their decompositions to determine to what extent entrepreneurial activity, as represented by self-employment in the nonagricultural sector, contributed to the rise in wealth inequality. We decompose the effects of entrepreneurial activity into the effects of three components: changes in the level of entrepreneurial activity, changes in the mean return to entrepreneurial activity, and changes in the variation in returns to entrepreneurial activity. Then, we probe the relationship between entrepreneurship and inequality further by examining the economic activities of the individuals in the top fractiles of the wealth distribution. In particular, we consider the extent to which the economic activities of the wealthy correspond to the sectors of change and growth in the economy.

Discussant:   Kevin Hassett, American Enterprise Institute

Frank R. Lichtenberg (Columbia University and National Bureau of Economic Research) "Public Policy and Innovation in the U.S. Pharmaceutical Industry"

The pharmaceutical industry is one of the most R&D-intensive industries in the economy, and the government plays a larger role as both customer and regulator of it than it does of most other industries. This paper offers brief analyses of the impact on innovation of three public policies--the 1962 Kefauver-Harris amendment, the 1992 Prescription Drug User Fee Act, and the 1965 Social Security Amendments (Titles XVIII and XIX: Medicare and Medicaid)--and detailed discussions of two policies: the 1984 Drug Price Competition and Patent Term Restoration Act (the Hatch-Waxman Amendments), and the first Clinton Administration’s 1993 health care reform proposal, which was never implemented.

Discussant:   Thomas Kniesner, Syracuse University

Joseph Cordes (George Washington University), Gene Steuerle (Urban Institute), and  Eric Twombly (Urban Institute)     "Dimensions of Nonprofit Entrepreneurship"

The paper will explore three facets of entrepreneurship in the nonprofit sector. One is the role of nonprofit entrepreneurs in founding new nonprofit organizations in response to changes in demand for nonprofit services prompted by changes in public policy. Another is the extent to which managers of existing nonprofit organizations have incentives to respond in entrepreneurial ways to changes in their environment. The third is a recent trend in which for-profit entrepreneurs have been motivated to found new for-profit ventures in order to financially support nonprofit activities.

The conceptual framework of the paper will draw on three different literatures: the general literature on for-profit entrepreneurship; economic models of nonprofit organizations and nonprofit entrepreneurs; and the interdisciplinary literature on organization theory. We will also make use of data on entry and exits of nonprofit organizations developed in the Urban Institute’s Center on Nonprofits and Philanthropy to analyze the entry of new nonprofits in selected markets – human services, and education – where policy changes alter the potential demand for services provided by nonprofit organizations.

Discussant:   Timothy Smeeding, Syracuse University