New College Graduates, the Business Cycle, and the Prospects for New Firm Formation

In what should be a familiar theme to our readers by this point, below is the abstract for an interesting new paper on the link between entrepreneurship and the business cycle. Stopping Start-ups: How the Business Cycle Affects Entrepreneurship, by Li Yu, Peter F. Orazem and Robert W. Jolly at the Iowa State University. Abstract:

This study analyzes whether economic conditions at the time of labor market entry affect entrepreneurship, using difference in business start-ups between cohorts of college students graduating in boom or bust economic conditions. Those graduating during an economic bust tend to delay their business start-ups relative to boom period graduates by about two years. Our results are consistent with additional findings that higher unemployment rates at time of graduation significantly delay the first business start-up across all college graduation cohorts over the 1982-2004 period. The adverse effect of a bust is temporary, delaying but not preventing self-employment over the life-cycle.