Entrepreneurship Is a Key to Poverty Reduction

November 26, 2012

The economic boom of the 2000s reduced the poverty rate in many states, adding weight to the old adage that a rising economic tide will lift all boats.  Some states, however, were more effective at lowering the poverty rate than others. Indeed, entrepreneurship played a major role, says Stephen Silvinski, a senior economist at the Goldwater Institute.

  • A substantial number of academic studies show that entrepreneurial endeavors can help move people out of poverty, whether they start their own business -- like a food truck or a hair salon -- or whether they are hired by an entrepreneur.
  • The continuous experience of self-employment is the most effective strategy for economic mobility.
  • Indeed, higher average rates of entrepreneurship in a state correspond to bigger declines in poverty; in fact, every 1 percentage point increase in entrepreneurship corresponds to a 2 percent decrease in the poverty rate.

The best way for government to improve the economy is to encourage entrepreneurship.

  • This means the government needs to decrease business regulation and let free enterprises lead the way.
  • Accordingly, lifting licensing requirements that hurt poor entrepreneurs the most should be seen as an antipoverty policy.

Source: Stephen Silvinski, "Entrepreneurship Is a Key to Poverty Reduction," Goldwater Institute, November 13, 2012.

 

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