Entrepreneurship and the Workforce

Courtesy of the Kauffman Foundation

A growing economy constantly creates new job opportunities in new sectors, but also displaces and even destroys existing jobs. The workforce in an entrepreneurial economy must always evolve as well. Government efforts to protect jobs are often misguided, hindering growth and new job creation. Pro-growth workforce rules should instead focus on developing worker skills, allowing maximum hiring and layoff flexibility, and focus adjustment efforts on getting displaced workers into new jobs as soon as possible. Small firms employ half of all private sector employees and create 60-80 percent of net new jobs in the U.S., according to the SBA. Labor rules are one of the largest barriers to entrepreneurial ventures.1 The World Bank’s cross-country comparison of labor regulations shows lower job creation where workplace rules are more rigid.2 Labor rules must move beyond the early 20th century framework of management versus labor and encourage new firm formation as well as a dynamic, not static, worker.

Three Entrepreneurial Workforces


  1. U.S. policy should support the self-employed workforce and encourage more startups.
  2. Small and growing firms should not face large-firm workplace regulations that discourage hiring, flexibility, and growth.
  3. The government should not discourage innovative labor policies at big organizations (including government agencies) such as flexible hours and more.

Labor Market Rigidity Hurts Job-creation and Growth


  • Heavier regulation of labor is associated with lower labor force participation and higher unemployment, especially of the young.3
  • In an open economy, flexible labor regulation can increase annual growth by up to 1.5%.4
  • Strict protection of jobs in many European countries inhibits job creation, explaining slow growth and higher unemployment rates. However, successful reforms in many European nations such as Denmark – allowing easy hiring and firing – confirm the wisdom of policy competition.5
  • Venture capital has had difficulties taking off in Japan in part because of its traditional system of lifetime employment in large companies, which discourages existing employees from leaving to start new ventures, and impedes the rare entrepreneur’s ability to attract suitable employees or partners.6

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