Wage inequality and entrepreneurship in regional labour markets

Entrepreneurship has been recognized as an important driver of innovation and economic growth. For that reason, policymakers seek to attract knowledge-based and high-tech entrepreneurial activities into their cities and regions. To achieve this objective, increasing attention has been paid to people engaged in ‘creative’ professions, i.e., those occupations where knowledge is created, transformed, or used in innovative ways. By attracting creative professions, policymakers expect to contribute to better economic performance.

The better economic performance may come at the cost of increased inequality. In particular, it has been observed that as the proportion of highly paid, creative occupations increases in cities, so does the proportion of low-paid, low-skill jobs while the numbers of those earning middle incomes withers.

This study examines the impact of entrepreneurship and the incidence of creative occupations on wage inequality in Portuguese metropolitan regions. The paper aims to determine whether the rise of entrepreneurship and an increasing incidence of people in creative occupations is linked to increased wage inequality. The paper uses data on workers’ occupations and incomes as well as the creation of new firms over time and space. The results indicate that regional labor markets where job creation by new firms is stronger, and creative occupations represent a greater proportion of total employment, are associated with greater inequality in wage incomes. New firms pay lower average wages but offer a greater share of high-paying jobs than incumbent firms consistent with the prediction.

Click here to go to the paper by António Sérgio Ribeiro, Rui Baptista, and Francisco Lima.