The Hometown Advantage We Thought We Understood
The subject of this series is the local bias of entrepreneurship (LBE): the tendency for self-employed people to live in the state where they were born more often than comparable wage-and-salary workers do. This opening asks what it means that the US measure has weakened since 1970. The practical payoff is a sharper distinction between a fading economic advantage of birthplace and the much simpler story that entrepreneurs have merely become more willing to move.
That distinction matters because entrepreneurship is often described in two seemingly incompatible ways. In one version, founders are highly mobile: they follow opportunity, talent, customers, and capital into the strongest ecosystems. In the other, ordinary small businesses are often tied to place. The first image is visible and easy to narrate; the second is economically consequential but less glamorous. The LBE research joins them by asking not only where firms are founded, but who founds where—and what a founder's existing relationship with a place makes possible.
A measure of home-field advantage, not a migration count
The US evidence uses a deliberately relative measure. For people born in the United States and aged 18 to 65, the researchers ask whether current residence is in the person's state of birth. They then compare self-employed people with wage-and-salary workers who have similar observed characteristics, including age, education, marital status, number of children, and region of birth; the broader specification also accounts for sex and race. The LBE is the extra probability associated with being self-employed.
That wording is important. An LBE of 4 percentage points does not mean that only 4 percent of entrepreneurs stay home, or that 4 percent of them have been prevented from moving. It means that the local share among self-employed people is four percentage points higher than the corresponding share among the comparison workers. The benchmark absorbs some general attachment to birthplace. What remains is the entrepreneurial excess.
The US study applies this comparison to repeated cross-sections: the 1970, 1980, 1990, and 2000 Decennial Censuses, followed by the 2006–2010 and 2014–2018 American Community Surveys. Among white men, the LBE was about 8 percentage points in 1970. It fell to roughly 3 points by 2000 and stood around 2 points in 2014–2018. For all US-born people, the decline was sharper: from 6 points in 1970 to less than 1 point by 2000, then toward zero. The latest point estimate is slightly negative.
The scale of the earlier gap was meaningful. Around 2000, about 55 percent of people in the relevant population lived in their birth state. Against that baseline, an additional several percentage points for self-employed people represents a distinct relationship between entrepreneurship and place, not a statistical curiosity. At the same time, the latest result should be stated precisely: self-employed people have become less unusually concentrated in their birth state relative to wage workers. The study does not show that local firms disappeared, that movers now dominate all business formation, or that birthplace ceased to matter for every founder.
The measure also defines the population under discussion. “Self-employed” here is a labor-force classification, not a synonym for venture-backed technology founder. It includes the broad population of people whose primary status is self-employment, including many small-business owners. The paper notes that some high-growth entrepreneurs do move domestically or internationally toward frontier ecosystems. That can be true at the same time as ordinary self-employment remains shaped by local relationships. A story about famous founder migration cannot, by itself, explain the location choices of the much larger small-business population.
Why the location of small-business formation matters
Place enters this problem because starting a business is not only a decision about an idea. It is also a decision about information, trust, finance, customers, workers, and monitoring. A person who has spent years in a region may be legible to local institutions in ways a newcomer is not. They may know which customers pay reliably, which suppliers can be trusted, how local rules work in practice, and which lender or intermediary will take a meeting. Those advantages may be informal, uneven, and difficult to transport across a border even when the founder's skills are portable.
The earlier Italian study gives this intuition an economic form. It found that entrepreneurs were more likely than dependent workers to work in their birth province, and that local entrepreneurs tended to run larger, more capital-intensive, and better-financed firms. Its proposed mechanism is not that locals possess a mystical ability to operate businesses. Rather, local banks and other financiers may have better information about people rooted in the region; local reputation and social pressure may reduce concerns about repayment or moral hazard; and lenders may prefer a venture close enough to monitor. Birthplace can therefore bundle social capital and financial access into an advantage.
That evidence is useful for understanding the US question, but it is not a second US time series. The Italian researchers studied working household heads in the 1991, 1993, and 1995 Survey of Household Income and Wealth. They measured locality at the province level and had to assume that people worked where they lived. The US study uses state-of-birth residence and a much longer sequence of census and survey data. The two studies can be connected through a mechanism—local embeddedness may affect entrepreneurial opportunity—without pretending that their samples, geographies, or historical conditions are interchangeable.
The regional stakes follow from the same logic. If local founders can use local information and finance to build firms that employ more people or use more capital, then the supply of entrepreneurs is part of how a place develops. A region does not simply receive a fixed stock of mobile entrepreneurial talent. Its institutions help determine who can enter, which businesses can be financed, and how large those businesses can become. Conversely, if a region's businesses no longer require the forms of locally mediated capital that once made birthplace especially valuable, its LBE may decline even while local entrepreneurship continues in other forms.
This is why the topic cannot be reduced to a choice between “stay” and “move.” A local founder may gain financing and market knowledge but face a smaller opportunity set than someone willing to relocate. A mover may reach a larger market yet lose the reputation and relationships that support borrowing. Those trade-offs also differ by occupation. The Italian evidence reports that moving wage workers earned more than local wage workers, while non-local entrepreneurs operated smaller and less valuable businesses than local entrepreneurs. Mobility is not one universal economic treatment with one universal return.
What is fading—and what remains unresolved
The central interpretation is that the value of hometown embeddedness depends partly on the kind of self-employment being created. The US study documents a large reorganization away from high-startup-capital industries. Such industries represented a majority of self-employment activity in 1970 but about one-quarter by 2014–2018; the decline was especially steep among local entrepreneurs. Lower-capital self-employment rose among both locals and movers. If the earlier local advantage was most useful when a founder needed substantial, locally mediated credit, then a shift toward businesses that require less startup capital would reduce the advantage's weight in the aggregate measure.
There is a second possibility: external finance itself may have become less locally segmented. If lenders can assess unfamiliar founders more easily, or if capital can travel farther without the same monitoring costs, the information and reputation that once came bundled with birthplace become less decisive. The available US evidence treats this as an interpretation consistent with the trend, not as a fully isolated cause. The data show the LBE decline and the changing capital composition; they do not by themselves measure every change in lending technology or prove that one caused the other.
The income evidence adds another dimension. In 1970, the self-employed had a thicker upper tail of total income than wage workers, consistent with ownership of often-local businesses providing a route to high earnings. By 2014–2018, that separation was less pronounced. The authors connect the change to the shrinking high-capital segment, while warning that income surveys mix labor income with business returns, may understate self-reported earnings, and compress the upper tail through top-coding. The point is not that local entrepreneurship stopped producing prosperous firms. It is that one historically important route from local ownership to very high income appears to have become less distinct.
Several questions therefore remain open. Did Americans become more mobile, or did the self-employed population change composition? Did local credit become more portable, or did fewer businesses need it? Did attachment to birthplace weaken, or did entrepreneurship become more similar to wage work in its location pattern? The evidence does not yet provide a complete decomposition, and the latest observation ends in 2014–2018. Nor should the Italian results be treated as proof that the same mechanism explains every country or every kind of founder.
What the research does establish is more specific and more useful than either extreme story. Place mattered to entrepreneurship because it could carry information, finance, and trust. In the United States, the broad self-employed population has become less concentrated in its birthplace relative to wage workers as the capital-intensive part of self-employment has shrunk. The hometown advantage is therefore not best understood as a feeling that has vanished. It is an economic relationship whose payoff changes when the financing needs, business forms, and alternatives available to entrepreneurs change.
The next question is the mechanism at the center of that relationship: if birthplace is an economic advantage, what exactly does a local founder have that a mover may lose?