Launching with a Parachute: The Gig Economy and New Business Formation

John Barrios, Yael V. Hochberg and Hanyi Yi

No 27183, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The introduction of the gig economy creates opportunities for would-be entrepreneurs to supplement their income in downside states of the world and provides insurance in the form of an income fallback in the event of failure. We present a conceptual framework supporting the notion that the gig economy may serve as an income supplement and as insurance against entrepreneurial-related income volatility, and utilize the arrival of the on-demand, platform-enabled gig economy in the form of the staggered rollout of ridehailing in U.S. cities to examine the effect of the arrival of the gig economy on new business formation. The introduction of gig opportunities is associated with an increase of ~5% in the number of new business registrations in the local area, and a correspondingly-sized increase in small business lending to newly registered businesses. Internet searches for entrepreneurship-related keywords increase ~7%, lending further credence to the predictions of our conceptual framework. Both the income supplement and insurance channels are empirically supported: the increase in entry is larger in regions with lower average income and higher credit constraints, as well as in locations with higher ex-ante economic uncertainty regarding future wage levels and wage growth.

JEL-codes: G39 J01 L26 O3 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-ent, nep-lab and nep-sbm
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Citations: View citations in EconPapers (5)

Published as John M. Barrios & Yael V. Hochberg & Hanyi Yi, 2022. "Launching with a parachute: The gig economy and new business formation," Journal of Financial Economics, vol 144(1), pages 22-43.

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