High-Technology Entrepreneurship in Silicon Valley OpportunitiesandOpportunity Costs

The economic expansion of the late 1990s undoubtedly created manyopportunities for business creation in Silicon Valley, but theopportunity cost of starting a business was also high during this periodbecause of the exceptionally tight labor market. A new measure ofentrepreneurship derived from matching monthly files from the CurrentPopulation Survey (CPS) is used to provide the first test of thehypothesis that entrepreneurship rates were high in Silicon Valleyduring the 'Roaring 90s.' Unlike previous measures of firm births basedon large, nationally representative datasets, the new measure capturesbusiness creation at the individual-owner level, includes both employerand non-employer business starts, and focuses on only hi-techindustries. Estimates from the matched CPS data indicate that hi-techentrepreneurship rates were lower in Silicon Valley than the rest of theUnited States during the period from January 1996 to February 2000.Controlling for the large concentration of immigrants and highlyeducatedworkforce does not change the conclusion. Examining the post-boomperiod, we find that entrepreneurship rates in Silicon Valley increasedfrom the late 1990s to the early 2000s. In contrast, trends inentrepreneurship rates in the United States were constant over thisperiod. Although Silicon Valley may be an entrepreneurial locationoverall, the extremely tight labor market of the late 1990s, especiallyin hi-tech industries, may have suppressed business creation during this period.