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High-Technology Entrepreneurship in Silicon Valley1

Abstract

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.

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