The effects of entrepreneurship on income inequality in developed countries: in search of mechanisms

This paper contributes to exploring mechanisms through which entrepreneurship can reduce income inequality in developed countries. During the 2000s, higher-quality (opportunity-driven, growth-oriented, or innovative) entrepreneurship reduced inequality by diminishing the income share of the upper tail. A possible mechanism is Schumpeterian creative destruction. Entrepreneurs may have chal-lenged the market power of incumbent firms, reducing their markups and the remuneration of their owners and managers. Higher-quality entrepreneurship additionally increased the income share at the lower tail. A possible mechanism is job creation. Entrepreneurs may have offered poor, low-skilled workers additional employment opportunities. During the 2010s, the effect of opportunity entrepre-neurship on income inequality vanished, however. It neither reduced the top nor increased the bottom income shares. This hints toward a declining role of both creative destruction and job creation. Necessi-ty entrepreneurship has not affected income inequality during the entire period.

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