Entrepreneurship and income inequality in cities: differentiated impacts of new firm formation and self-employment

Abstract

This article examines the effects of two types of entrepreneurship–new firm formation versus self-employment–on income inequality within cities in the United States. Regression analysis based on metropolitan areas between 2005 and 2015 shows that an increase in new firm formation decreases household income inequality. In contrast, more self-employment increases inequality. These results are consistent across different measures of income inequality and model specifications. This study highlights the need for differentiating entrepreneurship in understanding its role in regional development. It further confirms vibrant start-up activity as a key strength of a regional economy.