The Impact of Entrepreneurship on Community Integration: Evidence from a Quasi-natural Experiment

Previous research has focused on the antecedents of entrepreneurship within communities, but little is known about the consequences of entrepreneurship for the community. Focusing on within-community integration, as indicated by violation of community norms through misconduct, we propose that regional boosts of entrepreneurial activity benefit communities. Using employer–employee matched data from Portugal between 2002 and 2010 and an exogenous increase in entrepreneurship, we find support for our claims. Following the enactment of entry deregulation policies which increased entrepreneurship, the incidence of norm violation through misconduct declined within the focal community. We further find that labor market integration of disadvantaged groups is the key mechanism responsible for this effect. Workers from such groups are more likely to (a) transition into entrepreneurship; (b) find employment; and (c) experience improvement in working conditions – when entrepreneurship rates increase. The beneficial effect of entrepreneurship on misconduct was further amplified in communities with greater rates of unemployment and greater income inequality, confirming our prediction that entrepreneurship can serve as a vehicle to improve the standing of low-income communities.