The “Great Recession” resulted in many business closings and foreclosures, but what effect did ithave on business formation? On the one hand, recessions decrease potential business income andwealth, but on the other hand they restrict opportunities in the wage/salary sector leaving the neteffect on entrepreneurship ambiguous. The most up-to-date microdata available -- the 1996 to2009 Current Population Survey (CPS) -- are used to conduct a detailed analysis of thedeterminants of entrepreneurship at the individual level to shed light on this question. Regressionestimates indicate that local labor market conditions are a major determinant of entrepreneurship.Higher local unemployment rates are found to increase the probability that individuals startbusinesses. Home ownership and local home values for home owners are also found to havepositive effects on business creation, but these effects are noticeably smaller. Additionalregression estimates indicate that individuals who are initially not employed respond more to highlocal unemployment rates by starting businesses than wage/salary workers. The results point to aconsistent picture – the positive influences of slack labor markets outweigh the negativeinfluences resulting in higher levels of business creation. Using the regression estimates for thelocal unemployment rate effects, I find that the predicted trend in entrepreneurship rates tracksthe actual upward trend in entrepreneurship extremely well in the Great Recession.

The economic expansion of the late 1990s created many opportunities for business creation inSilicon Valley, but the opportunity cost of starting a business was also high during this periodbecause of the exceptionally tight labor market. A new measure of entrepreneurship derivedfrom matching files from the Current Population Survey (CPS) is used to provide the first test ofthe hypothesis that business creation rates were high in Silicon Valley during the "Roaring 90s."Unlike previous measures of firm births based on large, nationally representative datasets, thenew measure captures business creation at the individual-owner level, includes both employerand non-employer business starts, and focuses on only hi-tech industries. Estimates indicate thathi-tech entrepreneurship rates were lower in Silicon Valley than the rest of the United Statesduring the period from January 1996 to February 2000. Examining the post-boom period, wefind that entrepreneurship rates in Silicon Valley increased from the late 1990s to the early2000s. Although Silicon Valley may be an entrepreneurial location overall, we provide the firstevidence that the extremely tight labor market of the late 1990s, especially in hi-tech industries,may have suppressed business creation during this period.