Entrepreneurship and Socioeconomic Mobility: Evidence From Ex-Offenders

Prior research has pointed to entrepreneurship – broadly defined as new venture creation or any form of self-employment – as a potential response to the lack of regular employment options in the labor market. However, whether marginalized groups will indeed be better off in entrepreneurship than in organizational employment remains poorly understood. We adopt a question-driven approach to study the role of entrepreneurship as a vehicle of social mobility for individuals with criminal records. We leverage the gradual replacement of short prison sentences by community service sentences to study how ex-offenders suffering different detachment from the labor market due to the type of sentence received turn to entrepreneurship as a career option, and how they fare in key socioeconomic integration indicators. After following a matched sample of ex-offenders charged with either type of sentence for five years, we find that, conditional on finding employment and compared to formerly incarcerated individuals of otherwise comparable characteristics, those sentenced with community service pursue entrepreneurship less often. Importantly, we also find that ex-felons who turn to entrepreneurship after having been incarcerated suffer an income disadvantage that increases over time and re-offend more often than those who find regular employment. Hence, our findings question how effective entrepreneurship can be as a social mobility and reintegration pathway for individuals with criminal records.