Iowa State University economics professor John Winters, pictured, and graduate student Kunwon Ahn have co-authored a new study that indicates more education increases entrepreneurship in the U.S., particularly for women.
“The benefits of education are often debated. Some worry it’s mostly about signaling rather than skill development, but our study provides a piece of evidence that additional years of education after high school can boost self-employment in high growth industries,” Winters said in a news release about the study.
Winters and Ahn categorized industries as “high growth,” “low-to-middle growth” and “shrinking” based on industry employment growth data between 2006 and 2019 from the U.S. Bureau of Labor Statistics’ Quarterly Census of Employment and Wages. They relied on the U.S. Census Bureau’s American Community Survey, examining employment and education data on nearly 8.2 million people born in the U.S. between 1963 and 1990.
The self-employed identification includes others who are not entrepreneurs intending to start and expand new businesses, so the researchers based their study on survey respondents who were self-employed and had an incorporated business.
The high-growth category included e-commerce and computer processing services but also industries within education, health care and social services. Food processing, trucking and grocery were among the low-to-middle-growth industries, and manufacturing of automobiles, electronics and other products made up the larger share of the shrinking industries, the release said.
In summary, Winters and Ahn’s study found:
- Additional schooling led to more self-employment in high-growth industries for men and women.
- Additional schooling led to more self-employment in low-to-medium-growth industries for women but not for men.
- Additional schooling led to less self-employment in shrinking industries for men. The researchers could not make any definitive conclusions about shrinking-industry self-employment for women because the results were not statistically significant.
Winters said obtaining more education shifted the overall number of self-employed men from shrinking and low-to-medium-growth industries to high-growth industries and increased self-employment overall for women.
Entrepreneurs need confidence to take the risk of becoming self-employed, and Winters said differences in confidence levels among men and women could explain the different effect of education on their self-employment. Previous research has shown men historically tend to be more confident or even overconfident compared with women, he said.
“Education is empowering. For men who are overconfident, additional schooling may not affect their confidence much, but it can provide skills to help them in more productive and higher-growth industries,” Winters said. “For women, education may have an even greater impact on encouraging them to jump into entrepreneurship by increasing their confidence in addition to their skills.”
Winters and Ahn used employment and education data from white, non-Hispanic adults for the study in order to have large enough sample sizes for every state between 1963 and 1990.
Winters said there is a need for further research on the effect of education on entrepreneurship as a whole and within different demographic groups.
“Education and entrepreneurship are both massively important topics, and better understanding how they work together is critical for a prosperous future,” he said. “Our paper is only scratching the surface, but we hope future research sheds light on things like the influence of college major, student debt, and where entrepreneurs start their businesses.”
Winters and Ahn published the paper on the study in the journal Small Business Economics.