Description
In such a brief criteria around 1 million missing entrepreneurs.
1 Center for American Progress | 1 Million Missing Entrepreneurs
1 Million Missing Entrepreneurs
What Data Reveal About the Lost Class of American
Entrepreneurs and Solutions to Bring Them Back
By Jennifer Erickson and Adam Hersh May 2015
New research shows that from 2002 to 2008, the percentage of business-owner house-
holds dropped so considerably that the U.S. economy had 1 million fewer entrepreneurs
than it would have had if it had kept pace from the 1990s.
1
In the 2000s—as the middle
class faced increased pressures and the nation experienced rising inequality
2
—fewer
people took the leap to become entrepreneurs, and more entrepreneurs closed down
shop for other forms of employment. Furthermore, in his new paper, World Bank
economist Camilo Mondragón-Vélez warns of “entrepreneurship [becoming] a viable
option only for those with higher income and wealth levels.”
3
Entrepreneurship is a key driver of U.S. economic growth and leadership in the world
economy, and economic research shows that the middle class plays a central role in it.
4
It is also evident that a vast swathe of U.S. society has felt a tightening fnancial squeeze
over the past several decades.
5
But what is truly striking, and what should give both
policymakers and venture capitalists pause, is that these 1 million entrepreneurs—rep-
resenting more than the population of San Francisco or Boston—were missing even
before the full efects of the Great Recession hit. In the wake of the recession, the per-
centage of business-owned households dropped even further.
6
To be sure, the mid- to late 1990s was a time when Internet-driven information technol-
ogy enabled the creation of many new companies that transformed our economy, and
we should take care in drawing conclusions from any one set of data or time period. But
entrepreneurship covers a vast swathe of businesses—from main street businesses to
small startups and solo practitioners operating out of home ofces. And the 2000s, with
their boom in real estate construction, had no shortage of potential for new small busi-
nesses as well.
Tis issue brief highlights the fndings of new research on the pressures facing U.S.
entrepreneurship, explaining how the strength of the middle class and entrepreneur-
ship are related and ofering policy recommendations that will set the stage for entre-
preneurial success.
2 Center for American Progress | 1 Million Missing Entrepreneurs
New research on the middle class and entrepreneurship
A new Center for American Progress report from Mondragón-Vélez analyzes the factors
that afected entrepreneurship through 2011. In “How Does Middle-Class Financial
Health Afect Entrepreneurship in America?”, Mondragón-Vélez analyzes data from
the Panel Study of Income Dynamics and fnds that the difculty middle-class families
experienced in fnancing new business ventures constrained entrepreneurship to older,
higher-educated, higher-wealth households.
7
His analysis details three particularly important points:
•
One million entrepreneurs are missing from the U.S. economy relative to the per-
centage of business-owner households in the 1990s. Business creation rates stalled
from 2002 to 2008, while business failure rates increased. Tis occurred even as regula-
tory and tax policies shifed toward the supply-side economic focus of the 2000s, which
professed to be good for business.
8
Mondragón-Vélez writes:
9
As middle-class families’ incomes stagnated, … the average percentage of busi-
ness-owner households dropped to 12.4 percent fom 2002 to 2008 and again to
11.8 percent in 2010. Te net efect is equivalent to a loss of more than 1 million
business-owner households compared to the previous decade.
•
There is now a wider wealth gap between new business owners and their median
worker peers. In the 1980s and 1990s, “new business owners only had 1.7 to 2 times
more wealth than their median-wage worker peers.” By the 2000s, this number had
jumped to two to three times more wealth. As Mondragón-Vélez notes, “limited
wealth accumulation capacity has been gradually making entrepreneurship in America
a luxury type of good, mainly available to individuals with high incomes and a high
net worth.”
10
•
Entrepreneurs are waiting longer before starting a venture. New entrepreneurs in
the 2000s waited an average of seven years longer than new entrepreneurs in the 1980s
to start their own businesses. Te median age of a new business-owned household
jumped from 38 years old in the 1980s to 45 years old in the 2000s.
11
Given that middle-class families account for 60 percent of new business ventures, “their
increasing fnancial stress partly explains the stagnation of business-creation rates in the
2000s compared to the late 1990s.”
12
Mondragón-Vélez argues that the efects of a fnan-
cial squeeze on the middle class are clear:
13
Flat income for the majority of families deterred the American middle class fom accu-
mulating much in the form of non-real-estate wealth during the 2000s. Tis ultimately
translated into lower possibilities to save and accumulate fnancial capital in order to
overcome potential liquidity and credit constraints for many of those willing to start
new businesses.
3 Center for American Progress | 1 Million Missing Entrepreneurs
Put simply, anyone concerned about the importance of entrepreneurship for the American
economy should also be concerned about the strength of the nation’s middle class.
The relationship of the middle class to entrepreneurship
Research shows that the majority of American entrepreneurs come from middle-class
families.
14
Beyond the statistics, economists Heather Boushey and Adam Hersh outline
why the middle class is particularly important to entrepreneurship:
15
•
A strong middle class promotes broader access to the education, skills, and experience
needed to start a successful business.
•
A strong middle class provides fertile ground for would-be entrepreneurs and allows
them reasonable expectations of success by creating strong and stable demand in the
overall economy.
•
A strong middle class ensures that families can sustain the fnancial risks associated
with starting a new business while their dreams take shape.
Promoting broad access to the education and skills necessary for entrepreneurship
In his report, Mondragón-Vélez shows that approximately two-thirds of new U.S.
entrepreneurs have some college education. Tis is signifcantly higher than educational
atainment of the U.S. population overall.
16
In fact, the probability is signifcantly higher
that more educated workers—independent from their level of wealth—will become
entrepreneurs. According to a separate study by Mondragón-Vélez, “the transition prob-
ability for the college educated is 50-100% higher than that of the non-college educated
for most of the wealth distribution.”
17
Te connection between education and entrepreneurship is evident, but what about
the connection between education and the strength of the middle class? In the United
States, the data indicate that opportunities for people to accumulate human capital—
and the higher incomes that come with it—are increasingly being passed from parents
to children through social channels, as opposed to biologically inherited traits.
18
Te fail-
ure of the U.S. education system to provide broad access to quality, afordable education
means that individuals are economically rewarded by their socioeconomic statuses, not
just their skills and productivity. Tis constrains the less privileged from creating and
contributing their own entrepreneurial initiatives to the U.S. economy.
4 Center for American Progress | 1 Million Missing Entrepreneurs
Supporting strong and stable demand, which supports entrepreneurship
Demand is critical to the success of any business, whether existing or new. As the past
generation has seen a dramatic rise in inequality and increased pressures on the middle
class, new questions have been raised about the stability of demand.
As Boushey and Hersh pointed out, the health of the middle class afects aggregate demand:
19
•
Diferent tendencies to spend—the “marginal propensity to consume”—at varying
levels of income and wealth mean that high inequality weakens aggregate demand.
•
Changes in the distribution of income—across households, and between profts and
worker wages—afect the stability of aggregate demand.
•
Having a large middle-class markets create business synergies and spillovers that ben-
eft economic growth.
All of these economic points can be summarized simply: To be successful, entrepreneurs
need consumers who are able to buy what they are selling. As venture capitalist Nick
Hanauer wrote in Bloomberg Businessweek, “only consumers can set in motion a virtu-
ous cycle that allows companies to survive and thrive and business owners to hire.”
20
To
have a vibrant environment where entrepreneurs can build successful businesses, we
need a vibrant middle class.
Ensuring that families have access to resources to sustain entrepreneurs
Risk is inherent in entrepreneurship; policy cannot and should not seek to eliminate
it. But there are economic risks associated with becoming an entrepreneur that are
independent from a venture’s business risk and an entrepreneur’s ability. Entrepreneurs
face greater risks of inconsistent income fows and substantial wealth losses, as well as
less access to afordable health care. As Nobel Prize-winning economist Robert Shiller
points out, market institutions typically do not provide entrepreneurs with ways to
self-insure against such risks,
21
which undeniably deters some prospective entrepreneurs
with otherwise economically sound business ventures.
Te efects of health care access provide a clear example of how mitigating certain risks
can encourage entrepreneurship. Individuals with access to employer-provided health
insurance through a spouse—a situation much more common in middle-class families
than in low-income families—are signifcantly more likely to become self-employed; hus-
bands are 14 percent more likely, while wives are 7 percent more likely.
22
A study by econ-
5 Center for American Progress | 1 Million Missing Entrepreneurs
omist Robert Fairlie and his co-authors found that accessing Medicare at age 65 made
men more likely to own a business than men just younger than age 65.
23
In other words,
changing just one risk—health care access—led to an increase in entrepreneurship.
Te following policies address how to strengthen the middle class and, with it, the next
generation of entrepreneurs.
Policy recommendations for entrepreneurial success
Given the importance of the middle class in feeding America’s entrepreneur pipeline,
policies that strengthen and expand it should be at the top of the economic agenda.
Some of the policies that follow will have an efect on the pipeline of entrepreneurs
over the longer term, such as investments in education, while others will have a more
immediate efect, such as fxing our immigration system and welcoming new entrepre-
neurs. Many of the policies described below are part of CAP’s long-term growth plan, as
described in 300 Million Engines of Growth.
24
Access to high-quality education
Ensuring that students with interest and ability are able to access the higher-education
system is central to building America’s pipeline of future entrepreneurs. Over the past
generation, the infation-adjusted cost of a public four-year college degree has increased
by 250 percent.
25
In order to remain economically competitive, the United States needs
to boost its postsecondary education atainment by ensuring that all American students
can pursue a college education. Tis plan—which CAP calls College for All—will guar-
antee that every high school graduate receives the fnancial support needed to atend
college.
26
To make college more afordable, states need to reinvest in higher education
through the enactment of a Public College Quality Compact.
27
To provide access to
high-quality higher education, policymakers need to expand and improve the U.S.
Department of Education’s College Scorecard, so that it is a central repository of easy-
to-read information on average net price, graduation rates, and earnings afer graduation.
Colleges should also be required to use understandable, standardized fnancial aid
leters.
28
New mechanisms need to be created that support students’ transition from
high school to college, including expanding college-ambassador programs based on the
National College Advising Corps. Tis will allow college seniors to receive federal work-
study funding by working as trained counselors for low-income, frst-generation high
school students.
6 Center for American Progress | 1 Million Missing Entrepreneurs
And when we think about the longer-term pipeline of entrepreneurs, it is difcult to
dispute that having only about one-third of eighth-grade students profcient in math
and reading
29
is a problem for the future. If American lawmakers are truly interested in
the future of U.S. entrepreneurship, then they should ensure that access to high quality
education begins in early childhood.
30
Access to capital
Entrepreneurs need more than ideas to innovate; they need capital as well. Even in the
United States’ well-developed fnancial system, many people remain excluded from
credit markets or cannot receive the amount of credit they desire. Would-be entrepre-
neurs ofen must rely on self-fnancing, at least initially, and regularly draw on their own
savings to fnance a new venture.
A Cleveland Federal Reserve Paper shows that one in four small-business owners used
home equity to fnance their businesses, by either pledging their homes as collateral
or borrowing against them.
31
A 2013 Small Business Administration report shows that
“personal wealth, primarily through home ownership, decreases the probability of loan
denials among existing business owners,” noting that personal wealth “may be even
more important for entrepreneurs in acquiring startup loans.”
32
Considering between 11
percent and 17 percent of homeowners now have mortgages higher than their homes
are worth,
33
this is undoubtedly having an efect on some entrepreneurs’ ability to start
or grow their businesses.
Te 2012 Jumpstart Our Business Startups, or JOBS, Act was designed in part to ofer new
funding streams for entrepreneurs and small businesses. How successful it will be in this
endeavor depends on how regulations are writen and how capital markets adjust to this
new legislation. Unquestionably, however, there is more that can be done to assist entre-
preneurs. Particularly, policymakers can work to repair the damage to the housing market.
Much more needs to be done to repair this damage, and policymakers can aid potential
entrepreneurs by taking the following steps:
•
Assisting current homeowners by requiring lenders to forgive the underwater portion
of mortgage balances if it would return more value to investors than foreclosure
•
Require Fannie Mae and Freddie Mac to support a healthier and more equitable hous-
ing market by increasing access to and afordability of mortgages, providing strug-
gling borrowers with beter loan modifcations that include principal reductions, and
capitalizing the National Housing Trust Fund and Capital Magnet Fund
34
7 Center for American Progress | 1 Million Missing Entrepreneurs
Portable benefits that prevent job lock
While grappling with a degree of fnancial uncertainty is inevitable for potential entre-
preneurs, concern over loss of benefts can be a signifcant deterrent from leaving a job.
Tis phenomenon is known as job lock. Given the daunting cost of health care and the
fact that the majority of Americans have health care through employer-based systems,
35
health care is one of the most critical benefts to make portable. More specifcally,
research shows “evidence that ‘entrepreneurship lock’ exists, which raises concerns that
the bundling of health insurance and employment may create an inefcient level of busi-
ness creation.”
36
A 2009 Council of Economic Advisers report noted that health care reforms that expand
available coverage “could help spur entrepreneurial activity by increasing the incentives
for talented Americans to launch their own companies, and could increase the pool of
workers willing to work at small frms.”
37
Efective and timely implementation of the
Afordable Care Act could play a signifcant role in removing this barrier to entrepre-
neurship.
38
Additionally, by ofering more universal and portable retirement benefts
through hybrid retirement plans—such as CAP’s Secure, Accessible, Flexible, and
Efcient, or SAFE, Retirement Plan—policymakers could do even more to ensure that
workers and their families have more security as they start new ventures.
39
Fixing the immigration system and welcoming aspiring Americans
Immigration has been a huge boon to America’s entrepreneurialism. Immigrants are
twice as likely as native-born Americans to start a new business.
40
Tey or their children
have also founded 40 percent of the country’s Fortune 500 companies, from Ford to
Google.
41
Immigration is a powerful force in today’s job market, with immigrant-owned
businesses employing 1 in 10 American workers in the private sector. Furthermore,
immigrants founded 28 percent of all new U.S. companies in 2011.
42
Creating an immi-
gration system that is safer and more easily understood is central to U.S. entrepreneurial
prospects. Te United States must ofer a fair, navigable pathway to citizenship for aspir-
ing Americans already in the country; support family reunifcation by clearing system
backlogs; improve access to permanent visas for foreign graduates of U.S. universities
with science, technology, engineering and math, or STEM, degrees; and create a dis-
cretionary pool of visas that can be fexibly allocated based on broadly defned national
interest. Te recent executive actions could also promote entrepreneurship by enhanc-
ing the utility of the national interest waiver for legal permanent resident applicants of
exceptional ability and by authorizing inventors, researchers, and start-up founders to
receive parole status on a case-by-case basis in order to pursue their research and devel-
opment here in the United States.
43
8 Center for American Progress | 1 Million Missing Entrepreneurs
Investments in science and technology
Advancements in science and technology account for roughly half of the increase in
the U.S. economy since World War II.
44
As huge as this innovation boon has been
to overall gross domestic product, it has also signifcant afected entrepreneurs. For
example, National Science Foundation grants helped in the founding of companies
such as Google, and government-funded research led to successful commercial applica-
tions, such as the 1,500 NASA success stories,
45
or whole new industries—including the
Defense Advanced Research Projects Agency, or DARPA; the Internet; national labs;
and optical digital recording technology. Investments in U.S. science are ofen invest-
ments in future U.S. entrepreneurs.
With this kind of return on investment, there is a huge economic cost to the failure to
fund the appropriations for the National Science Foundation, the National Institute
of Standards and Technology, and the Department of Energy Ofce of Science that
were authorized under the COMPETES Reauthorization Act of 2010. Tis $6 billion
gap in funding, which CAP researchers termed “Science Gap 1.0,” cannot be repeated
as Congress considers several proposals to again reauthorize the COMPETES Act.
46
Replicating that mistake could lead to Science Gap 2.0—or a dearth of more than $13
billion in funding for these agencies—is a cost too high to bear to seriously promote
innovation and entrepreneurship.
47
Conclusion
Amid the many interesting fndings in Mondragón-Vélez’s research, is his discovery that:
48
Not only do middle-class families account for 60 percent of business creation in the
United States, but they also explain the stagnation of business-ownership growth rates
in the 2000s compared to the late 1990s.
From Henry Ford to Steve Jobs, many of America’s most transformative entrepreneurs
have come from the middle class. If policymakers do not act to strengthen the middle
class and reverse the trends that caused the nation to miss out on 1 million potential
entrepreneurs in the 2000s, then they risk sacrifcing tremendous competitive advan-
tages and future economic growth.
Jennifer Erickson is the Director of Competitiveness and Economic Growth at the Center for
American Progress. Adam Hersh was formerly a Senior Economist at the Center. He is now a
Senior Economist at the Roosevelt Institute and a Visiting Scholar at Columbia University’s
Initiative for Policy Dialogue.
9 Center for American Progress | 1 Million Missing Entrepreneurs
Endnotes
1 Camilo Mondragón-Vélez, “How Does Middle-Class
Financial Health Afect Entrepreneurship in America?”
(Washington: Center for American Progress, 2015), available
athttps://www.americanprogress.org/issues/economy/
report/2015/03/18/109169.
2 Jennifer Erickson, ed., “The Middle Class Squeeze: A
Picture of Stagnant Incomes, Rising Costs, and What We
Can Do to Strengthen America’s Middle Class” (Wash-
ington: Center for American Progress, 2014), available
athttps://www.americanprogress.org/issues/economy/
report/2014/09/24/96903/the-middle-class-squeeze/.
3 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
4 Heather Boushey and Adam Hersh, “Middle Class Series:
The American Middle Class, Income Inequality, and the
Strength of Our Economy: New Evidence in Economics”
(Washington: Center for American Progress, 2012), available
athttp://www.americanprogress.org/issues/economy/
report/2012/05/17/11628/the-american-middle-class-
income-inequality-and-the-strength-of-our-economy/.
5 Ibid.; Erickson, ed., “The Middle Class Squeeze.”
6 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
7 Ibid.
8 Michael Ettlinger and Michael Linden, “Middle Class Series:
The Failure of Supply-Side Economics: Three Decades of
Empirical Economic Data Shows that Supply Side Economics
Doesn’t Work” (Washington: Center for American Progress,
2012), available athttp://www.americanprogress.org/
issues/economy/news/2012/08/01/11998/the-failure-of-
supply-side-economics/.
9 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
10 Ibid.
11 Ibid.
12 Ibid.
13 Ibid.
14 Vivek Wadhwa and others, “The Anatomy of an Entrepre-
neur: Family Background and Motivation” (Kansas City,
MO: Ewing Marion Kaufman Foundation, 2009), available
athttp://www.kaufman.org/~/media/kaufman_org/
research%20reports%20and%20covers/2009/07/anatomy_
of_entre_071309_fnal.pdf.
15 Portions of this section taken verbatim from Boushey and
Hersh, “Middle Class Series: The American Middle Class,
Income Inequality, and the Strength of Our Economy.”
16 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
17 Camilo Mondragón-Vélez, “The probability of entrepreneur-
ship revisited: wealth, education and age,” Annals of Finance
5 (3–4) (2009): 421–441, available athttp://link.springer.
com/article/10.1007/s10436-008-0117-3.
18 Boushey and Hersh “Middle Class Series: The American
Middle Class, Income Inequality, and the Strength of Our
Economy: New Evidence in Economics.”
19 Portions of this section taken verbatim from Boushey and
Hersh, “Middle Class Series: The American Middle Class,
Income Inequality, and the Strength of Our Economy.”
20 Nick Hanauer, “Raise Taxes on Rich to Reward True Job Cre-
ators: Nick Hanauer,” Bloomberg Businessweek, December
7, 2011, available athttp://www.bloomberg.com/news/
articles/2011-12-01/raise-taxes-on-the-rich-to-reward-job-
creators-commentary-by-nick-hanauer.
21 Robert J. Shiller, Macro Markets: Creating Institutions for
Managing Society’s Largest Economic Risks (Oxford: Oxford
University Press, 1993).
22 Alison J. Wellington, “Health Insurance Coverage and
Entrepreneurship,” Contemporary Economic Policy 19 (4)
(2001): 465–478, available athttp://onlinelibrary.wiley.com/
doi/10.1093/cep/19.4.465/full.
23 Robert W. Fairlie, Kanika Kapur, and Susan M. Gates, “Is
Employer-Based Health Insurance A Barrier to Entrepre-
neurship?” (Santa Monica, CA: RAND Corporation, 2010),
available athttp://www.rand.org/content/dam/rand/pubs/
working_papers/2010/RAND_WR637-1.pdf.
24 Jennifer Erickson and Michael Ettlinger, eds., 300 Million
Engines of Growth: A Middle-Out Plan for Jobs, Business, and
a Growing Economy (Washington: Center for American
Progress, 2013), available athttp://www.americanprogress.
org/issues/economy/report/2013/06/13/66204/300-million-
engines-of-growth/.
25 Sandy Baum and Jennifer Ma, “Trends in College Pricing:
2014” (New York: The College Board, 2012), available athttp://trends.collegeboard.org/college-pricing/notes-
sources.
26 David A. Bergeron and Carmel Martin, “Strengthening
Our Economy through College for All” (Washington:
Center for American Progress, 2015), available at https://
www.americanprogress.org/issues/higher-education/
report/2015/02/19/105522/strengthening-our-economy-
through-college-for-all/.
27 David A. Bergeron, Elizabeth Baylor, and Antoinette Flores,
“A Great Recession, a Great Retreat: A Call for a Public Col-
lege Quality Compact” (Washington: Center for American
Progress, 2014), available athttps://www.americanprogress.
org/issues/higher-education/report/2014/10/27/99731/a-
great-recession-a-great-retreat/.
28 Julie Margetta Morgan, “New Financial Aid Letters Should
Be Mandatory: They Need to Be Comparable to Be Efective”
(Washington: Center for American Progress, 2011), avail-
able athttps://www.americanprogress.org/issues/labor/
news/2011/09/12/10221/new-fnancial-aid-award-letters-
should-be-mandatory/.
29 National Center for Education Statistics, A First Look: 2013
Mathematics and Reading (U.S. Department of Education,
2013), available athttp://nces.ed.gov/nationsreportcard/
subject/publications/main2013/pdf/2014451.pdf.
30 For more information on improving access to high-quality
early childhood education, see Cynthia G. Brown and oth-
ers, “Investing in Our Children: A Plan to Expand Access to
Preschool and Child Care” (Washington: Center for American
Progress, 2013), available athttp://www.americanprogress.
org/issues/education/report/2013/02/07/52071/investing-
in-our-children/; For more information on home visiting, see
Stephanie Schmidt, Christina Walker, and Rachel Herzfeldt-
Kamprath, “An Investment in Our Future: How Federal Home
Visiting Funding Provides Critical Support for Parents and
Children” (Washington: Center for American Progress, 2015),
available athttps://www.americanprogress.org/issues/
early-childhood/report/2015/02/11/106406/an-investment-
in-our-future/.
31 Mark Schweitzer and Scott Shane, “The Efect of Falling
Home Prices on Small Business Borrowing” (Cleveland: Fed-
eral Reserve Bank of Cleveland, 2010), available at https://
www.clevelandfed.org/en/Newsroom%20and%20Events/
Publications/Economic%20Commentary/2010/2010-18%20
The%20Efect%20of%20Falling%20Home%20Prices%20
on%20Small%20Business%20Borrowing.aspx.
32 Alicia Robb, “Access to Capital among Young Firms,
Minority-owned Firms, Women-owned Firms, and High-tech
Firms” (Washington: Small Business Administration Ofce
of Advocacy, 2013), available athttp://www.sba.gov/sites/
default/fles/fles/rs403tot%282%29.pdf.
10 Center for American Progress | 1 Million Missing Entrepreneurs
33 Corelogic, “Equity Report: Fourth Quarter 2014” (2015),
available athttp://www.corelogic.com/research/negative-
equity/corelogic-q4-2014-equity-report.pdf; Svenja Gudell,
“Even as Home Values Rise, Negative Equity Rate Flattens,”
Zillow Real Estate Research, March 19, 2015, available
athttp://www.zillow.com/research/negative-equity-
2014-q4-9223/.
34 This policy taken verbatim from Erickson, ed.,“The Middle-
Class Squeeze,” p. 15.
State Health Access Data Assistance Center, “State-Level Trends
in Employer-Sponsored Health Insurance: A State by State
Analysis” (2013), available athttp://www.rwjf.org/content/
dam/farm/reports/reports/2013/rwjf405434.
35 Ibid.
36 Fairlie, Kapur, and Gates, “Is Employer-Based Health Insur-
ance A Barrier to Entrepreneurship?”
37 Council of Economic Advisers, The Economic Efects of Health
Care Reform on Small Businesses and Their Employees (The
White House, 2009), available athttp://www.whitehouse.
gov/administration/eop/cea/Health-Care-Reform-and-
Small-Businesses.
38 Congressional Budget Ofce, The Budget and Economic
Outlook 2014 to 2024 (2014), available athttp://www.cbo.
gov/sites/default/fles/45010-Outlook2014_Feb_0.pdf;
Linda J. Blumberg, Sabrina Corlette, and Kevin Lucia, “The
Afordable Care Act: Improving Incentives for Entrepre-
neurship and Self-Employment” (Washington: The Urban
Institute: 2013), available athttp://www.rwjf.org/content/
dam/farm/reports/issue_briefs/2013/rwjf406367.
39 Rowland Davis and David Madland, “American Retirement
Savings Could Be Much Better” (Washington: Center for
American Progress, 2013), available athttp://www.american-
progress.org/wp-content/uploads/2013/08/SAFEreport.pdf.
40 Partnership for a New American Economy, “Open for Busi-
ness: How Immigrants Are Driving Small Business Creation in
the United States” (2012), available athttp://www.renewou-
reconomy.org/sites/all/themes/pnae/openforbusiness.pdf.
41 Partnership for a New American Economy, “The ‘New
American’ Fortune 500” (2011), available athttp://www.
renewoureconomy.org/sites/all/themes/pnae/img/new-
american-fortune-500-june-2011.pdf.
42 Partnership for a New American Economy, “Open for Busi-
ness: How Immigrants Are Driving Small Business Creation
in the United States.”
43 Tom Khalil and Doug Rand, “Entrepreneurs Wanted: The
President’s Actions on Immigration”The White House blog,
November 26, 2014, available athttps://www.whitehouse.
gov/blog/2014/11/26/entrepreneurs-wanted-president-s-
actions-immigration.
44 Michael J. Boskin and Lawrence J. Lau, “Generalized
Solow-Neutral Technical Progress and Postwar Economic
Growth.”Working Paper 8023 (National Bureau of Economic
Research, 2000), available athttp://www.nber.org/papers/
w8023; Robert M. Solow, “Technical Change and the Ag-
gregate Production Function,” Review of Economics and
Statistics 39 (3) (1957): 312–320, available athttp://www9.
georgetown.edu/faculty/mh5/class/econ489/Solow-
Growth-Accounting.pdf.
45 J.R. Wilson, “Space Program Benefts: NASA’s Positive Impact
on Society,” available athttp://www.nasa.gov/50th/50th_
magazine/benefts.html (last accessed March 2014).
46 Harry Stein, Jennifer Erickson, and Alex Rowell, “Closing the
Science Gap: Why We Need to Reinvest in Basic Research”
(Washington: Center for American Progress, 2014), available
athttp://www.americanprogress.org/issues/budget/re-
port/2014/09/02/96182/closing-the-science-gap/.
47 Ibid.
48 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
doc_687001484.pdf
In such a brief criteria around 1 million missing entrepreneurs.
1 Center for American Progress | 1 Million Missing Entrepreneurs
1 Million Missing Entrepreneurs
What Data Reveal About the Lost Class of American
Entrepreneurs and Solutions to Bring Them Back
By Jennifer Erickson and Adam Hersh May 2015
New research shows that from 2002 to 2008, the percentage of business-owner house-
holds dropped so considerably that the U.S. economy had 1 million fewer entrepreneurs
than it would have had if it had kept pace from the 1990s.
1
In the 2000s—as the middle
class faced increased pressures and the nation experienced rising inequality
2
—fewer
people took the leap to become entrepreneurs, and more entrepreneurs closed down
shop for other forms of employment. Furthermore, in his new paper, World Bank
economist Camilo Mondragón-Vélez warns of “entrepreneurship [becoming] a viable
option only for those with higher income and wealth levels.”
3
Entrepreneurship is a key driver of U.S. economic growth and leadership in the world
economy, and economic research shows that the middle class plays a central role in it.
4
It is also evident that a vast swathe of U.S. society has felt a tightening fnancial squeeze
over the past several decades.
5
But what is truly striking, and what should give both
policymakers and venture capitalists pause, is that these 1 million entrepreneurs—rep-
resenting more than the population of San Francisco or Boston—were missing even
before the full efects of the Great Recession hit. In the wake of the recession, the per-
centage of business-owned households dropped even further.
6
To be sure, the mid- to late 1990s was a time when Internet-driven information technol-
ogy enabled the creation of many new companies that transformed our economy, and
we should take care in drawing conclusions from any one set of data or time period. But
entrepreneurship covers a vast swathe of businesses—from main street businesses to
small startups and solo practitioners operating out of home ofces. And the 2000s, with
their boom in real estate construction, had no shortage of potential for new small busi-
nesses as well.
Tis issue brief highlights the fndings of new research on the pressures facing U.S.
entrepreneurship, explaining how the strength of the middle class and entrepreneur-
ship are related and ofering policy recommendations that will set the stage for entre-
preneurial success.
2 Center for American Progress | 1 Million Missing Entrepreneurs
New research on the middle class and entrepreneurship
A new Center for American Progress report from Mondragón-Vélez analyzes the factors
that afected entrepreneurship through 2011. In “How Does Middle-Class Financial
Health Afect Entrepreneurship in America?”, Mondragón-Vélez analyzes data from
the Panel Study of Income Dynamics and fnds that the difculty middle-class families
experienced in fnancing new business ventures constrained entrepreneurship to older,
higher-educated, higher-wealth households.
7
His analysis details three particularly important points:
•
One million entrepreneurs are missing from the U.S. economy relative to the per-
centage of business-owner households in the 1990s. Business creation rates stalled
from 2002 to 2008, while business failure rates increased. Tis occurred even as regula-
tory and tax policies shifed toward the supply-side economic focus of the 2000s, which
professed to be good for business.
8
Mondragón-Vélez writes:
9
As middle-class families’ incomes stagnated, … the average percentage of busi-
ness-owner households dropped to 12.4 percent fom 2002 to 2008 and again to
11.8 percent in 2010. Te net efect is equivalent to a loss of more than 1 million
business-owner households compared to the previous decade.
•
There is now a wider wealth gap between new business owners and their median
worker peers. In the 1980s and 1990s, “new business owners only had 1.7 to 2 times
more wealth than their median-wage worker peers.” By the 2000s, this number had
jumped to two to three times more wealth. As Mondragón-Vélez notes, “limited
wealth accumulation capacity has been gradually making entrepreneurship in America
a luxury type of good, mainly available to individuals with high incomes and a high
net worth.”
10
•
Entrepreneurs are waiting longer before starting a venture. New entrepreneurs in
the 2000s waited an average of seven years longer than new entrepreneurs in the 1980s
to start their own businesses. Te median age of a new business-owned household
jumped from 38 years old in the 1980s to 45 years old in the 2000s.
11
Given that middle-class families account for 60 percent of new business ventures, “their
increasing fnancial stress partly explains the stagnation of business-creation rates in the
2000s compared to the late 1990s.”
12
Mondragón-Vélez argues that the efects of a fnan-
cial squeeze on the middle class are clear:
13
Flat income for the majority of families deterred the American middle class fom accu-
mulating much in the form of non-real-estate wealth during the 2000s. Tis ultimately
translated into lower possibilities to save and accumulate fnancial capital in order to
overcome potential liquidity and credit constraints for many of those willing to start
new businesses.
3 Center for American Progress | 1 Million Missing Entrepreneurs
Put simply, anyone concerned about the importance of entrepreneurship for the American
economy should also be concerned about the strength of the nation’s middle class.
The relationship of the middle class to entrepreneurship
Research shows that the majority of American entrepreneurs come from middle-class
families.
14
Beyond the statistics, economists Heather Boushey and Adam Hersh outline
why the middle class is particularly important to entrepreneurship:
15
•
A strong middle class promotes broader access to the education, skills, and experience
needed to start a successful business.
•
A strong middle class provides fertile ground for would-be entrepreneurs and allows
them reasonable expectations of success by creating strong and stable demand in the
overall economy.
•
A strong middle class ensures that families can sustain the fnancial risks associated
with starting a new business while their dreams take shape.
Promoting broad access to the education and skills necessary for entrepreneurship
In his report, Mondragón-Vélez shows that approximately two-thirds of new U.S.
entrepreneurs have some college education. Tis is signifcantly higher than educational
atainment of the U.S. population overall.
16
In fact, the probability is signifcantly higher
that more educated workers—independent from their level of wealth—will become
entrepreneurs. According to a separate study by Mondragón-Vélez, “the transition prob-
ability for the college educated is 50-100% higher than that of the non-college educated
for most of the wealth distribution.”
17
Te connection between education and entrepreneurship is evident, but what about
the connection between education and the strength of the middle class? In the United
States, the data indicate that opportunities for people to accumulate human capital—
and the higher incomes that come with it—are increasingly being passed from parents
to children through social channels, as opposed to biologically inherited traits.
18
Te fail-
ure of the U.S. education system to provide broad access to quality, afordable education
means that individuals are economically rewarded by their socioeconomic statuses, not
just their skills and productivity. Tis constrains the less privileged from creating and
contributing their own entrepreneurial initiatives to the U.S. economy.
4 Center for American Progress | 1 Million Missing Entrepreneurs
Supporting strong and stable demand, which supports entrepreneurship
Demand is critical to the success of any business, whether existing or new. As the past
generation has seen a dramatic rise in inequality and increased pressures on the middle
class, new questions have been raised about the stability of demand.
As Boushey and Hersh pointed out, the health of the middle class afects aggregate demand:
19
•
Diferent tendencies to spend—the “marginal propensity to consume”—at varying
levels of income and wealth mean that high inequality weakens aggregate demand.
•
Changes in the distribution of income—across households, and between profts and
worker wages—afect the stability of aggregate demand.
•
Having a large middle-class markets create business synergies and spillovers that ben-
eft economic growth.
All of these economic points can be summarized simply: To be successful, entrepreneurs
need consumers who are able to buy what they are selling. As venture capitalist Nick
Hanauer wrote in Bloomberg Businessweek, “only consumers can set in motion a virtu-
ous cycle that allows companies to survive and thrive and business owners to hire.”
20
To
have a vibrant environment where entrepreneurs can build successful businesses, we
need a vibrant middle class.
Ensuring that families have access to resources to sustain entrepreneurs
Risk is inherent in entrepreneurship; policy cannot and should not seek to eliminate
it. But there are economic risks associated with becoming an entrepreneur that are
independent from a venture’s business risk and an entrepreneur’s ability. Entrepreneurs
face greater risks of inconsistent income fows and substantial wealth losses, as well as
less access to afordable health care. As Nobel Prize-winning economist Robert Shiller
points out, market institutions typically do not provide entrepreneurs with ways to
self-insure against such risks,
21
which undeniably deters some prospective entrepreneurs
with otherwise economically sound business ventures.
Te efects of health care access provide a clear example of how mitigating certain risks
can encourage entrepreneurship. Individuals with access to employer-provided health
insurance through a spouse—a situation much more common in middle-class families
than in low-income families—are signifcantly more likely to become self-employed; hus-
bands are 14 percent more likely, while wives are 7 percent more likely.
22
A study by econ-
5 Center for American Progress | 1 Million Missing Entrepreneurs
omist Robert Fairlie and his co-authors found that accessing Medicare at age 65 made
men more likely to own a business than men just younger than age 65.
23
In other words,
changing just one risk—health care access—led to an increase in entrepreneurship.
Te following policies address how to strengthen the middle class and, with it, the next
generation of entrepreneurs.
Policy recommendations for entrepreneurial success
Given the importance of the middle class in feeding America’s entrepreneur pipeline,
policies that strengthen and expand it should be at the top of the economic agenda.
Some of the policies that follow will have an efect on the pipeline of entrepreneurs
over the longer term, such as investments in education, while others will have a more
immediate efect, such as fxing our immigration system and welcoming new entrepre-
neurs. Many of the policies described below are part of CAP’s long-term growth plan, as
described in 300 Million Engines of Growth.
24
Access to high-quality education
Ensuring that students with interest and ability are able to access the higher-education
system is central to building America’s pipeline of future entrepreneurs. Over the past
generation, the infation-adjusted cost of a public four-year college degree has increased
by 250 percent.
25
In order to remain economically competitive, the United States needs
to boost its postsecondary education atainment by ensuring that all American students
can pursue a college education. Tis plan—which CAP calls College for All—will guar-
antee that every high school graduate receives the fnancial support needed to atend
college.
26
To make college more afordable, states need to reinvest in higher education
through the enactment of a Public College Quality Compact.
27
To provide access to
high-quality higher education, policymakers need to expand and improve the U.S.
Department of Education’s College Scorecard, so that it is a central repository of easy-
to-read information on average net price, graduation rates, and earnings afer graduation.
Colleges should also be required to use understandable, standardized fnancial aid
leters.
28
New mechanisms need to be created that support students’ transition from
high school to college, including expanding college-ambassador programs based on the
National College Advising Corps. Tis will allow college seniors to receive federal work-
study funding by working as trained counselors for low-income, frst-generation high
school students.
6 Center for American Progress | 1 Million Missing Entrepreneurs
And when we think about the longer-term pipeline of entrepreneurs, it is difcult to
dispute that having only about one-third of eighth-grade students profcient in math
and reading
29
is a problem for the future. If American lawmakers are truly interested in
the future of U.S. entrepreneurship, then they should ensure that access to high quality
education begins in early childhood.
30
Access to capital
Entrepreneurs need more than ideas to innovate; they need capital as well. Even in the
United States’ well-developed fnancial system, many people remain excluded from
credit markets or cannot receive the amount of credit they desire. Would-be entrepre-
neurs ofen must rely on self-fnancing, at least initially, and regularly draw on their own
savings to fnance a new venture.
A Cleveland Federal Reserve Paper shows that one in four small-business owners used
home equity to fnance their businesses, by either pledging their homes as collateral
or borrowing against them.
31
A 2013 Small Business Administration report shows that
“personal wealth, primarily through home ownership, decreases the probability of loan
denials among existing business owners,” noting that personal wealth “may be even
more important for entrepreneurs in acquiring startup loans.”
32
Considering between 11
percent and 17 percent of homeowners now have mortgages higher than their homes
are worth,
33
this is undoubtedly having an efect on some entrepreneurs’ ability to start
or grow their businesses.
Te 2012 Jumpstart Our Business Startups, or JOBS, Act was designed in part to ofer new
funding streams for entrepreneurs and small businesses. How successful it will be in this
endeavor depends on how regulations are writen and how capital markets adjust to this
new legislation. Unquestionably, however, there is more that can be done to assist entre-
preneurs. Particularly, policymakers can work to repair the damage to the housing market.
Much more needs to be done to repair this damage, and policymakers can aid potential
entrepreneurs by taking the following steps:
•
Assisting current homeowners by requiring lenders to forgive the underwater portion
of mortgage balances if it would return more value to investors than foreclosure
•
Require Fannie Mae and Freddie Mac to support a healthier and more equitable hous-
ing market by increasing access to and afordability of mortgages, providing strug-
gling borrowers with beter loan modifcations that include principal reductions, and
capitalizing the National Housing Trust Fund and Capital Magnet Fund
34
7 Center for American Progress | 1 Million Missing Entrepreneurs
Portable benefits that prevent job lock
While grappling with a degree of fnancial uncertainty is inevitable for potential entre-
preneurs, concern over loss of benefts can be a signifcant deterrent from leaving a job.
Tis phenomenon is known as job lock. Given the daunting cost of health care and the
fact that the majority of Americans have health care through employer-based systems,
35
health care is one of the most critical benefts to make portable. More specifcally,
research shows “evidence that ‘entrepreneurship lock’ exists, which raises concerns that
the bundling of health insurance and employment may create an inefcient level of busi-
ness creation.”
36
A 2009 Council of Economic Advisers report noted that health care reforms that expand
available coverage “could help spur entrepreneurial activity by increasing the incentives
for talented Americans to launch their own companies, and could increase the pool of
workers willing to work at small frms.”
37
Efective and timely implementation of the
Afordable Care Act could play a signifcant role in removing this barrier to entrepre-
neurship.
38
Additionally, by ofering more universal and portable retirement benefts
through hybrid retirement plans—such as CAP’s Secure, Accessible, Flexible, and
Efcient, or SAFE, Retirement Plan—policymakers could do even more to ensure that
workers and their families have more security as they start new ventures.
39
Fixing the immigration system and welcoming aspiring Americans
Immigration has been a huge boon to America’s entrepreneurialism. Immigrants are
twice as likely as native-born Americans to start a new business.
40
Tey or their children
have also founded 40 percent of the country’s Fortune 500 companies, from Ford to
Google.
41
Immigration is a powerful force in today’s job market, with immigrant-owned
businesses employing 1 in 10 American workers in the private sector. Furthermore,
immigrants founded 28 percent of all new U.S. companies in 2011.
42
Creating an immi-
gration system that is safer and more easily understood is central to U.S. entrepreneurial
prospects. Te United States must ofer a fair, navigable pathway to citizenship for aspir-
ing Americans already in the country; support family reunifcation by clearing system
backlogs; improve access to permanent visas for foreign graduates of U.S. universities
with science, technology, engineering and math, or STEM, degrees; and create a dis-
cretionary pool of visas that can be fexibly allocated based on broadly defned national
interest. Te recent executive actions could also promote entrepreneurship by enhanc-
ing the utility of the national interest waiver for legal permanent resident applicants of
exceptional ability and by authorizing inventors, researchers, and start-up founders to
receive parole status on a case-by-case basis in order to pursue their research and devel-
opment here in the United States.
43
8 Center for American Progress | 1 Million Missing Entrepreneurs
Investments in science and technology
Advancements in science and technology account for roughly half of the increase in
the U.S. economy since World War II.
44
As huge as this innovation boon has been
to overall gross domestic product, it has also signifcant afected entrepreneurs. For
example, National Science Foundation grants helped in the founding of companies
such as Google, and government-funded research led to successful commercial applica-
tions, such as the 1,500 NASA success stories,
45
or whole new industries—including the
Defense Advanced Research Projects Agency, or DARPA; the Internet; national labs;
and optical digital recording technology. Investments in U.S. science are ofen invest-
ments in future U.S. entrepreneurs.
With this kind of return on investment, there is a huge economic cost to the failure to
fund the appropriations for the National Science Foundation, the National Institute
of Standards and Technology, and the Department of Energy Ofce of Science that
were authorized under the COMPETES Reauthorization Act of 2010. Tis $6 billion
gap in funding, which CAP researchers termed “Science Gap 1.0,” cannot be repeated
as Congress considers several proposals to again reauthorize the COMPETES Act.
46
Replicating that mistake could lead to Science Gap 2.0—or a dearth of more than $13
billion in funding for these agencies—is a cost too high to bear to seriously promote
innovation and entrepreneurship.
47
Conclusion
Amid the many interesting fndings in Mondragón-Vélez’s research, is his discovery that:
48
Not only do middle-class families account for 60 percent of business creation in the
United States, but they also explain the stagnation of business-ownership growth rates
in the 2000s compared to the late 1990s.
From Henry Ford to Steve Jobs, many of America’s most transformative entrepreneurs
have come from the middle class. If policymakers do not act to strengthen the middle
class and reverse the trends that caused the nation to miss out on 1 million potential
entrepreneurs in the 2000s, then they risk sacrifcing tremendous competitive advan-
tages and future economic growth.
Jennifer Erickson is the Director of Competitiveness and Economic Growth at the Center for
American Progress. Adam Hersh was formerly a Senior Economist at the Center. He is now a
Senior Economist at the Roosevelt Institute and a Visiting Scholar at Columbia University’s
Initiative for Policy Dialogue.
9 Center for American Progress | 1 Million Missing Entrepreneurs
Endnotes
1 Camilo Mondragón-Vélez, “How Does Middle-Class
Financial Health Afect Entrepreneurship in America?”
(Washington: Center for American Progress, 2015), available
athttps://www.americanprogress.org/issues/economy/
report/2015/03/18/109169.
2 Jennifer Erickson, ed., “The Middle Class Squeeze: A
Picture of Stagnant Incomes, Rising Costs, and What We
Can Do to Strengthen America’s Middle Class” (Wash-
ington: Center for American Progress, 2014), available
athttps://www.americanprogress.org/issues/economy/
report/2014/09/24/96903/the-middle-class-squeeze/.
3 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
4 Heather Boushey and Adam Hersh, “Middle Class Series:
The American Middle Class, Income Inequality, and the
Strength of Our Economy: New Evidence in Economics”
(Washington: Center for American Progress, 2012), available
athttp://www.americanprogress.org/issues/economy/
report/2012/05/17/11628/the-american-middle-class-
income-inequality-and-the-strength-of-our-economy/.
5 Ibid.; Erickson, ed., “The Middle Class Squeeze.”
6 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
7 Ibid.
8 Michael Ettlinger and Michael Linden, “Middle Class Series:
The Failure of Supply-Side Economics: Three Decades of
Empirical Economic Data Shows that Supply Side Economics
Doesn’t Work” (Washington: Center for American Progress,
2012), available athttp://www.americanprogress.org/
issues/economy/news/2012/08/01/11998/the-failure-of-
supply-side-economics/.
9 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
10 Ibid.
11 Ibid.
12 Ibid.
13 Ibid.
14 Vivek Wadhwa and others, “The Anatomy of an Entrepre-
neur: Family Background and Motivation” (Kansas City,
MO: Ewing Marion Kaufman Foundation, 2009), available
athttp://www.kaufman.org/~/media/kaufman_org/
research%20reports%20and%20covers/2009/07/anatomy_
of_entre_071309_fnal.pdf.
15 Portions of this section taken verbatim from Boushey and
Hersh, “Middle Class Series: The American Middle Class,
Income Inequality, and the Strength of Our Economy.”
16 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
17 Camilo Mondragón-Vélez, “The probability of entrepreneur-
ship revisited: wealth, education and age,” Annals of Finance
5 (3–4) (2009): 421–441, available athttp://link.springer.
com/article/10.1007/s10436-008-0117-3.
18 Boushey and Hersh “Middle Class Series: The American
Middle Class, Income Inequality, and the Strength of Our
Economy: New Evidence in Economics.”
19 Portions of this section taken verbatim from Boushey and
Hersh, “Middle Class Series: The American Middle Class,
Income Inequality, and the Strength of Our Economy.”
20 Nick Hanauer, “Raise Taxes on Rich to Reward True Job Cre-
ators: Nick Hanauer,” Bloomberg Businessweek, December
7, 2011, available athttp://www.bloomberg.com/news/
articles/2011-12-01/raise-taxes-on-the-rich-to-reward-job-
creators-commentary-by-nick-hanauer.
21 Robert J. Shiller, Macro Markets: Creating Institutions for
Managing Society’s Largest Economic Risks (Oxford: Oxford
University Press, 1993).
22 Alison J. Wellington, “Health Insurance Coverage and
Entrepreneurship,” Contemporary Economic Policy 19 (4)
(2001): 465–478, available athttp://onlinelibrary.wiley.com/
doi/10.1093/cep/19.4.465/full.
23 Robert W. Fairlie, Kanika Kapur, and Susan M. Gates, “Is
Employer-Based Health Insurance A Barrier to Entrepre-
neurship?” (Santa Monica, CA: RAND Corporation, 2010),
available athttp://www.rand.org/content/dam/rand/pubs/
working_papers/2010/RAND_WR637-1.pdf.
24 Jennifer Erickson and Michael Ettlinger, eds., 300 Million
Engines of Growth: A Middle-Out Plan for Jobs, Business, and
a Growing Economy (Washington: Center for American
Progress, 2013), available athttp://www.americanprogress.
org/issues/economy/report/2013/06/13/66204/300-million-
engines-of-growth/.
25 Sandy Baum and Jennifer Ma, “Trends in College Pricing:
2014” (New York: The College Board, 2012), available athttp://trends.collegeboard.org/college-pricing/notes-
sources.
26 David A. Bergeron and Carmel Martin, “Strengthening
Our Economy through College for All” (Washington:
Center for American Progress, 2015), available at https://
www.americanprogress.org/issues/higher-education/
report/2015/02/19/105522/strengthening-our-economy-
through-college-for-all/.
27 David A. Bergeron, Elizabeth Baylor, and Antoinette Flores,
“A Great Recession, a Great Retreat: A Call for a Public Col-
lege Quality Compact” (Washington: Center for American
Progress, 2014), available athttps://www.americanprogress.
org/issues/higher-education/report/2014/10/27/99731/a-
great-recession-a-great-retreat/.
28 Julie Margetta Morgan, “New Financial Aid Letters Should
Be Mandatory: They Need to Be Comparable to Be Efective”
(Washington: Center for American Progress, 2011), avail-
able athttps://www.americanprogress.org/issues/labor/
news/2011/09/12/10221/new-fnancial-aid-award-letters-
should-be-mandatory/.
29 National Center for Education Statistics, A First Look: 2013
Mathematics and Reading (U.S. Department of Education,
2013), available athttp://nces.ed.gov/nationsreportcard/
subject/publications/main2013/pdf/2014451.pdf.
30 For more information on improving access to high-quality
early childhood education, see Cynthia G. Brown and oth-
ers, “Investing in Our Children: A Plan to Expand Access to
Preschool and Child Care” (Washington: Center for American
Progress, 2013), available athttp://www.americanprogress.
org/issues/education/report/2013/02/07/52071/investing-
in-our-children/; For more information on home visiting, see
Stephanie Schmidt, Christina Walker, and Rachel Herzfeldt-
Kamprath, “An Investment in Our Future: How Federal Home
Visiting Funding Provides Critical Support for Parents and
Children” (Washington: Center for American Progress, 2015),
available athttps://www.americanprogress.org/issues/
early-childhood/report/2015/02/11/106406/an-investment-
in-our-future/.
31 Mark Schweitzer and Scott Shane, “The Efect of Falling
Home Prices on Small Business Borrowing” (Cleveland: Fed-
eral Reserve Bank of Cleveland, 2010), available at https://
www.clevelandfed.org/en/Newsroom%20and%20Events/
Publications/Economic%20Commentary/2010/2010-18%20
The%20Efect%20of%20Falling%20Home%20Prices%20
on%20Small%20Business%20Borrowing.aspx.
32 Alicia Robb, “Access to Capital among Young Firms,
Minority-owned Firms, Women-owned Firms, and High-tech
Firms” (Washington: Small Business Administration Ofce
of Advocacy, 2013), available athttp://www.sba.gov/sites/
default/fles/fles/rs403tot%282%29.pdf.
10 Center for American Progress | 1 Million Missing Entrepreneurs
33 Corelogic, “Equity Report: Fourth Quarter 2014” (2015),
available athttp://www.corelogic.com/research/negative-
equity/corelogic-q4-2014-equity-report.pdf; Svenja Gudell,
“Even as Home Values Rise, Negative Equity Rate Flattens,”
Zillow Real Estate Research, March 19, 2015, available
athttp://www.zillow.com/research/negative-equity-
2014-q4-9223/.
34 This policy taken verbatim from Erickson, ed.,“The Middle-
Class Squeeze,” p. 15.
State Health Access Data Assistance Center, “State-Level Trends
in Employer-Sponsored Health Insurance: A State by State
Analysis” (2013), available athttp://www.rwjf.org/content/
dam/farm/reports/reports/2013/rwjf405434.
35 Ibid.
36 Fairlie, Kapur, and Gates, “Is Employer-Based Health Insur-
ance A Barrier to Entrepreneurship?”
37 Council of Economic Advisers, The Economic Efects of Health
Care Reform on Small Businesses and Their Employees (The
White House, 2009), available athttp://www.whitehouse.
gov/administration/eop/cea/Health-Care-Reform-and-
Small-Businesses.
38 Congressional Budget Ofce, The Budget and Economic
Outlook 2014 to 2024 (2014), available athttp://www.cbo.
gov/sites/default/fles/45010-Outlook2014_Feb_0.pdf;
Linda J. Blumberg, Sabrina Corlette, and Kevin Lucia, “The
Afordable Care Act: Improving Incentives for Entrepre-
neurship and Self-Employment” (Washington: The Urban
Institute: 2013), available athttp://www.rwjf.org/content/
dam/farm/reports/issue_briefs/2013/rwjf406367.
39 Rowland Davis and David Madland, “American Retirement
Savings Could Be Much Better” (Washington: Center for
American Progress, 2013), available athttp://www.american-
progress.org/wp-content/uploads/2013/08/SAFEreport.pdf.
40 Partnership for a New American Economy, “Open for Busi-
ness: How Immigrants Are Driving Small Business Creation in
the United States” (2012), available athttp://www.renewou-
reconomy.org/sites/all/themes/pnae/openforbusiness.pdf.
41 Partnership for a New American Economy, “The ‘New
American’ Fortune 500” (2011), available athttp://www.
renewoureconomy.org/sites/all/themes/pnae/img/new-
american-fortune-500-june-2011.pdf.
42 Partnership for a New American Economy, “Open for Busi-
ness: How Immigrants Are Driving Small Business Creation
in the United States.”
43 Tom Khalil and Doug Rand, “Entrepreneurs Wanted: The
President’s Actions on Immigration”The White House blog,
November 26, 2014, available athttps://www.whitehouse.
gov/blog/2014/11/26/entrepreneurs-wanted-president-s-
actions-immigration.
44 Michael J. Boskin and Lawrence J. Lau, “Generalized
Solow-Neutral Technical Progress and Postwar Economic
Growth.”Working Paper 8023 (National Bureau of Economic
Research, 2000), available athttp://www.nber.org/papers/
w8023; Robert M. Solow, “Technical Change and the Ag-
gregate Production Function,” Review of Economics and
Statistics 39 (3) (1957): 312–320, available athttp://www9.
georgetown.edu/faculty/mh5/class/econ489/Solow-
Growth-Accounting.pdf.
45 J.R. Wilson, “Space Program Benefts: NASA’s Positive Impact
on Society,” available athttp://www.nasa.gov/50th/50th_
magazine/benefts.html (last accessed March 2014).
46 Harry Stein, Jennifer Erickson, and Alex Rowell, “Closing the
Science Gap: Why We Need to Reinvest in Basic Research”
(Washington: Center for American Progress, 2014), available
athttp://www.americanprogress.org/issues/budget/re-
port/2014/09/02/96182/closing-the-science-gap/.
47 Ibid.
48 Mondragón-Vélez, “How Does Middle-Class Financial Health
Afect Entrepreneurship in America?”
doc_687001484.pdf