Using a study of the relationship between bureaucratic work environments and individual rates of entrepreneurship, I revisit a fundamental premise of sociological approaches to entrepreneurship, namely, that the social context shapes the likelihood of entrepreneurial activity, above and beyond any effects of individual characteristics. Establishing such contextual effects empirically is complicated by the possibility that unobserved individual traits influence both the contexts in which people are observed and their likelihood of becoming entrepreneurs.
This paper presents the first systematic study of the effects of bureaucracy on entrepreneurship that accounts for such unobserved sorting processes. Analyses of data on labor market attachments and transitions to entrepreneurship in Denmark between 1990 and 1997 show that people who work for large and old firms are less likely to become entrepreneurs, net of a host of observable individual characteristics. Moreover, there is strong evidence to suggest that this negative effect of bureaucracy does not spuriously reflect self-selection by nascent entrepreneurs into different types of firms.
An important implication of this finding is that the structure of organizational populations affects the supply of nascent entrepreneurs, as well as the availability of entrepreneurial opportunities.