09.25.16

The Link Between Entrepreneurship and Poverty Reduction

By: Karl R. LaPan, President & CEO, Northeast Indiana Innovation Center

Right now, on the cusp of a national election, many Americans are asking themselves “At the end of the day, if I vote for Candidate X, how or will they make my life better?” Both nominees have ostensibly addressed the issues of poverty, economic disparity and job creation in the country; but, what is often bereft of the narrative is the role entrepreneurship plays in addressing poverty. The linkage is clear “states with a larger share of entrepreneurs had bigger declines in poverty.”

The bottom line: Entrepreneurship is an effective anti-poverty program. Consider these facts. During the economic boom of the 2000s, poverty rates declined in many states. Yet, some states saw more drastic decreases in poverty than others. While there has been much analysis of this phenomenon, what’s lacking is a closer look at the role entrepreneurs play in the process.

The facts and figures tell a poignant story. Data show that for every 1 percentage point increase in the rate of entrepreneurship in a state, there is a 2 percent decline in the poverty rate. Why isn’t this story being widely told? Other research indicates that entrepreneurial ventures can help move people out of poverty and achieve “economic freedom”, whether they start their own business – like a pizzeria or a nail salon – or whether they work for a business owner.

And although it doesn’t cite specific figures, a study published by the National Bureau of Economic Research in 2000 is promising. It concluded that “for individuals who began toward the bottom of the earnings distribution, continuous experience with self-employment was a successful strategy for moving ahead (relative to wage-earners), both in the short- and long-term.”

To help reduce poverty, our elected officials should focus on increasing the number of entrepreneurs nationwide. To that end, reducing barriers to entrepreneurship – leveling access to capital, talent, reducing over burdensome regulations and implementing favorable tax policies is the first step in making entrepreneurship accessible to people from all walks of life. And it’s an approach rooted in a long-term investment, not a quick fix.

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