Explaining Self‐Employment Success and Failure: Wal‐Mart Versus Starbucks, or Schumpeter Versus Putnam*

Abstract

Objectives.Two powerful socioeconomic innovations are sweeping the nation, led by Wal‐Mart Stores, Inc. and Starbucks Corp. These innovations both affect and are driven by profound labor market changes, but exactly how they affect self‐employment or entrepreneurship has not been investigated. We examine the independent effects of these phenomena on the returns to self‐employment, which is itself an underresearched topic in labor economics. Methods.We apply spatial econometric analysis to data from more than 3,000 U.S. counties to analyze how big‐boxes and drinking places that facilitate social networking affect self‐employment earnings. Findings.The presence of Wal‐Mart stores is associated with higher returns to self‐employment, whereas the results for coffee shops and drinking places are mixed. A negative interaction effect on earnings emerges when Wal‐Mart stores and drinking places exist in the same county. Conclusions.We confirm both Schumpeter's and Putnam's assertions about the importance of creative destruction and social networking in raising the productivity of entrepreneurs, although the latter effect is not as clear‐cut as the former.

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