4/29/2023 0 Comments Middle class![]() Why these businesses share this characteristic with businesses owned by poor entrepreneurs when the middle classes are typically less credit-constrained is not clear. This fact, combined with evidence of high borrowing costs, suggests that businesses owned by middle-class entrepreneurs are undercapitalized because of poor access to credit. Banerjee and Duflo depict their businesses more as means of sustenance than as "engines of growth."ĭespite the low profits of their businesses, middle-class entrepreneurs enjoy high returns to capital investments. Working on their own, middle-class entrepreneurs are able to earn about the same income as they would if they were employed, assuming they could find a salaried job, while working longer but less intensive hours. ![]() The main difference is that they are less likely to be involved in farming businesses when they live in rural areas. Middle-class entrepreneurs 1 run businesses mostly because they cannot find appropriate salaried jobs and their business investments are very similar to those of the poor. "If the middle class matters for growth, it is probably not because of its entrepreneurial spirit," Banerjee and Duflo (2008) conclude in their overview examining the middle classes around the world. Keywords: Middle class, social mobility, entrepreneurship, survey data, Colombia. Instead, the findings suggest that businesses run by these entrepreneurs are characterized by low productivity. Nor is there evidence that middle-class entrepreneurs' activity boosts economic growth. While entrepreneurs appear to enjoy more income mobility than the average worker, it is not clear whether this is true for middle-class entrepreneurs in particular or if it is a result of entrepreneurship. Microeconomic data are used to characterize entrepreneurs by income group and business characteristics. Email: paper explores whether Colombia's middle class is a cradle of entrepreneurship that drives innovation and business growth and fosters social mobility. We would also like to thank Edgar Castro who helped us give the paper its final shape. * We are grateful to Eduardo Lora and Francesca Castellani for their feedback on previous versions of the paper and to participants in the "Strengthening Mobility and Entrepreneurship: A Case for the Middle Classes" IDB workshops held in Washington, D.C. When we correlate an index of democracy and the middle class shares we find little or no correlation between both variables except for the group of high-income economies.MIDDLE-CLASS ENTREPRENEURS AND INADEQUATE PROSPECTS FOR SOCIAL MOBILITY THROUGH ENTREPRENEURSHIP IN COLOMBIA * We found weak correlations between the share of the middle class and the level of public spending and the relative size of the small and medium size enterprises (measured both as shares of total employment and total output). However, the relationship between the share in income of the middle class and the level of per capital income is non-linear and shows more dispersion for low and middle income countries with per capita income below US$ 10,000 than for rich economies. Our results show that in high income economies the relative size of the middle class (using a broad definition of deciles 3 to 9) is near 6 percentage points higher than the share of the middle class in low income countries, suggesting a positive relationship between the level of economic development measured by per capita income levels and the share of the middle class. This paper investigates, for a sample of more than 120 countries, some empirical correlations between the size of the middle class and the following set of variables: the level (mean) of per capita income and wealth, the degree of inequality (Gini coefficients) of per capita income and wealth, the level and composition of public expenditure, the share of small and medium size enterprises in employment and output and an indicator of democracy. In contrast, lower and middle income countries with highly unequal patterns of income distribution and stratified social structures often have a weak middle class, more social conflict and a tendency to populist and/or authoritarian politics. Stable, higher income democracies often have both a strong middle class and relatively low levels of inequality.
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