Even though this blog is committed to promoting entrepreneurship, I often say I don’t think everyone should become an entrepreneur, for the fundamental reason that not everyone wants to become an entrepreneur. Plenty of people want to go to work, do their job as well as they can (or as badly as they can get away with), and get paid a predictable amount on a predictable schedule.
But the flip side of that is plenty of people do want to become entrepreneurs, but don’t because of the unfathomable complexity of our system (which I obviously strive to make as fathomable as possible).
I compare entrepreneurship to the decision whether to live in a city, a suburb, or a rural area. It’s true that living in a city is much more environmentally sustainable than living in a suburb or rural area, due largely to shorter driving distances, increased access to public transit, and the higher heating/cooling efficiency of multifamily structures compared to single-family homes. But I don’t think everyone should live in a city because not everyone wants to live in a city. My view is simply that since more people want to live in cities than can currently afford to, and given the environmental benefits, we should strive to make city living more easily accessible.
In the same way rural residents benefit from the lower greenhouse gas emissions of city residents, what’s often missing in this conversation are the ways workers benefit from entrepreneurship — even workers who do not themselves become entrepreneurs.
The most important job an entrepreneur creates is their own
The idea of a “labor market” is a metaphor strained so hard you can see it coming apart at the seams. Virtually no one shows up to the “labor market” each day and puts out labor offers which are matched by labor bids from employers until the “market” clears. There are exceptions, of course: in certain neighborhoods in certain cities in certain parts of the country, I’m told, you really can drive up to the Home Depot parking lot and bargain one-on-one with day laborers for exactly one day’s work.
But that’s a curio: most laborers are not day laborers, and most “day” laborers are not actually employed by the day (it takes a couple days to replace a roof).
Still, the “labor market” is a metaphor that’s stuck around for a reason: you can see with the naked eye the fact that when firms are profitable, growing, and in need of additional workers, they become more desperate to hire, and when they’re unprofitable, shrinking, and laying off workers, they only replace absolutely essential personnel. If you squint at this observation just right, it kind of looks like a “labor market.”
But if you take the metaphor of a “labor market” even half-seriously, then it has an extremely important implication: when entrepreneurship removes a worker (“supply”) from the labor market, it increases the market price of all the labor remaining in the market. And, importantly, this is true regardless of the success or failure of the enterprise.
Eliminating barriers to entrepreneurship is pro-worker
Operating a profitable business is hard, but lots of things are hard, so that doesn’t bother me much. What concerns me are barriers to entrepreneurship. To give some obvious examples:
- the lack of a universal national health insurance scheme means employees, who pay workplace health insurance premiums, have to decide whether to go uninsured, switch to a public health insurance program, or buy insurance on an ACA exchange when starting a business. What is easy and simple for an employee requires a sprawling spreadsheet for an entrepreneur.
- the different rules for workplace-based savings schemes like HSA’s and 401(k)’s mean workers have to weigh the loss of one set of tax benefits against the benefits of gaining another.
- special treatment for business distributions compared to wages means that workers have to calculate whether a lower pre-tax business income may actually increase their take-home pay.
While these specific concerns are obviously tailored to problems in the United States, I want to make clear that the United States has an unusually good environment for entrepreneurs and entrepreneurship. In the United States, it is still possible to become an entrepreneur. These problems are even more significant in countries where the administrative burden simply puts entrepreneurship out of the question.
The problem is complexity, and it will run out of control if we let it
This is, obviously, at its core a political problem. But it is not a partisan problem. Republicans, famously, want to weaken the position of workers by making them increasingly reliant on their (stingy) workplace benefits. Democrats, famously, want to strengthen the position of workers by making them increasingly reliant on their (generous) workplace benefits. But the problem in both cases is the workplace as the locus of the welfare state.
Barack Obama was not a perfect president and the Affordable Care Act is not a perfect law, but since its pro-worker provisions affected so many more people, its pro-entrepreneur provisions have gone less noticed: Medicaid expansion was explicitly supposed to be a form of health insurance for new entrepreneurs; premium subsidies provide affordable health insurance for more profitable businesses; guaranteed issue and community rating provide health insurance for successful businesses.
The sabotage of this system by Republican officeholders is an urgent crisis, but we need to be realistic about the problems in the system itself: it relies, first and foremost, on workplace benefits, and as long as it does so, it is an obstacle to entrepreneurship, and so is definitionally anti-worker, no matter how generous the benefits are.
Conclusion: workplace-based policies are a guarantee of stagnation and decline
Back in April I wrote about a little-known giveaway included in the Smash-And-Grab Tax Act of 2017: the paid family and medical leave credit. Under that law, employers who provide their workers with paid family and medical leave (by the end of 2019) receive a rebate of a portion of their after-tax wage cost in the form of a refundable business tax credit.
But entrepreneurs don’t, and you see this tendency across the board: every policy that promotes employment has an equal and opposite effect on the appeal of entrepreneurship. The more money the government spends subsidizing workers, the less appeal there is in entrepreneurship, and the higher the supply of labor, depressing any hypothetical benefits that might flow down to workers themselves.
Before we succumb to the stagnation of other developed countries that have gone all-in on workplace-based policies, we need to start asking some simple questions:
- is a benefit universal, or is it means-tested?
- is a benefit universal, or is it employer-based?
- is a benefit universal, or is it location-based?
- is a benefit universal, or is it family-based?
Today the United States has an underdeveloped system of means-tested, employer-based, location-based, family-based policies. If we’re going to expand that system as much as we need to, we also need to expand it in a way that is universal and leaves room for entrepreneurs to exit the labor market and workers to demand higher wages.