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| Social Mobility and Entrepreneurial Vitality in Cities: An Inverted U-Shaped Explanation |
| SUN Weizeng, LI Yifan, JING Bo
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Joint Research Institute, Nanjing Audit University;
Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University;
PBC School of Finance, Tsinghua University |
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Abstract Inequality of opportunity and low social mobility are significant barriers to human capital accumulation and optimal allocation of human resources. With the stagnation of productivity and middle-income growth, coupled with the advancement of technological and climate transitions, enhancing social mobility has become a crucial lever for revitalizing the economic growth. Since China's economic transformation has entered a new normal, facing domestic and international challenges, mass entrepreneurship has become vital in supporting the real economy, stimulating market vitality, constructing new development patterns, and promoting high-quality economic growth. Given the importance of social mobility as a labor market incentive, how will enhanced social mobility affect regional entrepreneurial dynamism？ Can an open social structure stimulate greater entrepreneurial potential？ These are the core questions this paper investigates.
This paper constructs a theoretical model based on individual utility to elucidate the nonlinear relationship between social mobility and entrepreneurial choices. The model indicates that as social mobility increases, the opportunity cost of entrepreneurship rises while the associated risks decrease. This leads to a marginally diminishing upward trend or an inverted U-shaped trend in urban entrepreneurial dynamism. The decline in entrepreneurial dynamism is due to higher social mobility crowding out low-return entrepreneurship. By distinguishing between high-return and low-return entrepreneurship, the model shows that with enhanced social mobility, high-return entrepreneurship increases, while low-return entrepreneurship first rises and then falls, exhibiting an inverted U-shaped characteristic.
Using data from the China General Social Survey (CGSS) and business registration data from 2005-2018, this paper finds a significant inverted U-shaped relationship between social mobility and urban entrepreneurial dynamism, with the inflection point at the 52nd percentile. Half of the cities lie to the left of the inverted U-shaped inflection point, where enhancing social mobility boosts entrepreneurial dynamism. To address endogeneity issues, his paper uses instrumental variables such as the admission ratios of 985 universities in various provinces and the density of Ming and Qing dynasty scholars. The study finds that the inverted U-shaped relationship remains significant across robustness tests. Mechanism analysis reveals that enhanced social mobility promotes high-return opportunity-driven entrepreneurship but initially promotes and then crowds out low-return necessity-driven entrepreneurship. Heterogeneity analysis indicates that in cities with higher entrepreneurial opportunity costs, the crowding-out effect on necessity-driven entrepreneurship is more pronounced while reducing entrepreneurial risks enhances the positive effect on opportunity-driven entrepreneurship and mitigates the crowding-out effect on necessity-driven entrepreneurship.
The marginal contributions of this paper are twofold. First, through theoretical analysis, it elucidates the impact mechanism of social mobility on entrepreneurial choices, deriving a nonlinear relationship based on the maximization of expected entrepreneurial utility, enriching the literature on social mobility and entrepreneurship. Second, by using business registration and micro-survey data, it empirically verifies the inverted U-shaped impact of social mobility on urban entrepreneurial dynamism and explains the underlying reasons by examining the differential effects on different types of entrepreneurship.
The policy suggeshons of this paper are as follows. First, address institutional and policy barriers hindering labor mobility across social strata, activating social mobility through multiple channels, and reducing labor market friction. Second, the government should adopt proactive measures to lower barriers and risks of entrepreneurship by optimizing the business environment, relaxing financing constraints, and providing loan subsidies. Third, while accelerating social mobility to stimulate entrepreneurial dynamism, it is important to consider the positive impacts of necessity-driven entrepreneurship on individuals, families, and society, ensuring fairness in market competition, fostering an inclusive market atmosphere, and leveraging the labor force's inherent advantages. Fourth, tailored reforms to enhance social mobility should be implemented based on the different development stages of urban and rural areas, promoting overall employment quality through differentiated policy designs and mitigating structural employment contradictions.
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Received: 04 February 2024
Published: 02 October 2024
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