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The Economix blog recently wrote an interesting article discussing whether recessions stimulate the entrepreneurial spirit or not.  It certainly seems logical that as times get tougher and people become unemployed that they will seek out self-employment opportunities.  But is it really true?

They explain that:

There are two competing forces urging people toward or away from self-employment. One is opportunity: how much demand there is in the world for the good or service your new company would offer. The other is opportunity cost: what you’d be giving up by starting your own business.

In an economic expansion, there may be more demand for your new product, and it may be easier to get financing for your new company. But when the economy is strong, workers at bigger companies are probably more likely to claim higher salaries, signing bonuses and other perks that lure them away from the call of being their own boss.

On the flip side, during a downturn, the opportunity costs are lower. Job offers at established companies are fewer and further between, so would-be entrepreneurs probably have less to give up by starting a new company — especially if they’ve already been laid off and have zero other job offers available. But it’s hard to start a new business in a recession. Capital is hard to come by, and demand for goods and services of all stripes is generally lower.

By examining some 30 years worth of self-employment data they found that there is no obvious correlation between the business cycle and entrepreneurship.  So it seems that the myth that recessions spur entrepreneurship is busted.

Some thoughts of my own:

• Their data only reflects people who report being self employed for 15 hours or more per week.  This leaves out a lot of people.
• I’m wondering what criteria they use to define self employed.  Does this mean just people people who have brick and mortar businesses and/or have an established business plan?  Or does it include people who are taking whatever odd jobs they can and hoping something works out.  Depending on how they frame the question their data could be skewed.
• They have not yet differentiated between people who lost their job (or were felt that a lay off was coming) and those who have not.  It is very possible that while the rate of entrepreneurship doesn’t change with the business cycle the type of people who pursue entrepreneurship does.  What do I mean?  Well, if you have a secure job in a recession you’re probably not likely to either quit your job or start a side business since the market is so bad.  Better to just hang in there and be happy that you have a job.  But if your job isn’t secure, wouldn’t you be motivated to do whatever it took to pay the rent?  This is the question you need to ask to really see how business cycles affect entrepreneurship.
• Continuing along those lines.  If the recession forces you to take an odd job like pet sitting you may very well discover that you love the job and can make more money at it than you could in your old job.  Hence the recession could have made an entrepreneur out of someone who formerly wasn’t and may never have been if the recession didn’t come along.

What do you think?  Has the recent recession spurred you on to make extra income?  Or has it caused you to hunker down and just be happy that you have a job?