Why do some entrepreneurs drive financial progress whereas others don’t? This piece discusses new work that research entrepreneurs utilizing a complete dataset from Denmark. We research who turns into an entrepreneur, together with their hiring and enterprise selections, and discover {that a} distinct minority are “transformative.” These people, who generate disproportionate productiveness features, are inclined to have excessive IQ scores, be well-educated, and rent technical (R&D) employees. The information help the concept of productiveness progress being pushed by the symbiotic relationship between transformative entrepreneurs and R&D employees. For policymakers, the lesson is that when an financial system has extra R&D employees and transformative entrepreneurs, they maintain larger long-run productiveness progress.
Info on Entrepreneurs
Our work develops new info utilizing complete information on people and corporations from Denmark Statistics. For example, people’ IQ check scores come from a army check that’s usually taken in very early maturity. We mix this measure with particulars of entrepreneurs’ training and parental backgrounds and agency efficiency to attach people’ backgrounds with their corporations. The information are mentioned in additional element in our working paper.
We establish entrepreneurs as people who register as main founders of corporations with not less than one worker. Amongst this group, we distinguish transformative entrepreneurs, those that rent not less than one R&D employee, from non-transformative entrepreneurs, who don’t make use of technical personnel. This classification captures innovation intent slightly than efficiency outcomes. R&D employees are outlined as people employed in occupations with excessive patenting depth, reflecting their direct involvement in innovation-related actions.
The information reveal hanging patterns. The primary chart exhibits how the shares of entrepreneurs and R&D employees fluctuate throughout IQ deciles. The sample is reversed throughout the 2 teams: people with larger IQs usually tend to be R&D employees, however much less more likely to be entrepreneurs.
R&D Employees Are likely to Have Greater IQs than Entrepreneurs
Notes: The chart exhibits the share of all people in every IQ decile which are entrepreneurs (grey bars) and R&D employees (blue bars). Definitions out there in textual content and in Akcigit-Alp-Pearce-Prato (2025).
The sample flips for transformative entrepreneurs, as proven within the subsequent chart: people with larger IQs usually tend to be transformative entrepreneurs. These patterns stay when controlling for parental background, training, and age.
Transformative Entrepreneurs Have Greater IQs than Different Entrepreneurs
Notes: The chart exhibits the share of all people in every IQ decile which are labeled as non-transformative entrepreneurs (grey bars) and transformative entrepreneurs (pink bars). Definitions out there in textual content and in Akcigit-Alp-Pearce-Prato (2025).
Academic attainment exhibits related patterns as IQ: school graduates are much less more likely to develop into entrepreneurs general however are more likely to discovered transformative corporations as soon as they do. The strongest predictor of entrepreneurship is having a dad or mum who’s an entrepreneur. Schooling is central for transformative entrepreneurship and R&D employees, and is a key constructing block for an revolutionary ecosystem.
The Companies of Entrepreneurs
Monitoring agency employment over the primary decade after a agency is based reveals substantial efficiency variations between entrepreneur varieties. Transformative entrepreneurs begin corporations that make use of roughly twice as many employees as these based by non-transformative entrepreneurs and keep considerably larger annual employment progress charges (16 p.c versus 8 p.c). This may be seen within the subsequent chart.
Transformative Companies Develop Sooner
Notice: Common employment by agency age and entrepreneur kind, normalized to 1 at age zero.
Income trajectories mirror employment patterns. Transformative corporations attain seven instances their preliminary income by 12 months ten, whereas non-transformative corporations plateau at 2.5 instances preliminary ranges. Exit charges differ modestly between agency varieties: of their first 12 months, 16 p.c of non-transformative corporations exit, in comparison with 12 p.c of transformative corporations, although each charges converge to round 8–9 p.c by 12 months eight.
Trade sorting by IQ additionally displays intuitive patterns. Low-IQ entrepreneurs focus in conventional sectors like commerce/transport and development/agriculture, whereas high-IQ entrepreneurs dominate knowledge-intensive industries, with the information/communication sector representing 50 p.c of entrepreneurial exercise within the prime IQ deciles.
The Macroeconomics of Entrepreneurship
We develop a quantitative mannequin to check the macroeconomic results of entrepreneurship on innovation and financial progress, incorporating particular person variations in potential, household revenue, and entrepreneurial publicity. Within the mannequin, people select between manufacturing work and R&D careers initially, then determine later in life whether or not to develop into an entrepreneur, in step with the age profile within the information. In keeping with the information, academic attainment, vital for a technical profession path, is decided by each potential and household assets. The mannequin replicates key empirical patterns: unfavourable choice into basic entrepreneurship with respect to potential, constructive choice into transformative entrepreneurship and R&D work with respect to potential, and the noticed correlation between agency efficiency and entrepreneur kind.
The mannequin captures the symbiotic relationship between transformative entrepreneurs and R&D employees by linking particular person profession decisions to firm-level innovation selections. This microeconomic basis permits us to hint how boundaries and decisions on the particular person degree combination to economy-wide productiveness results by each supply-side constraints (formed by the supply of R&D employees) and demand-side limitations (decided by the pool of transformative entrepreneurs hiring technical expertise). This framework is important to develop a full vary of sensible responses to insurance policies and adjustments within the institutional atmosphere.
We use the mannequin to check the consequences of varied constraints and insurance policies. Eliminating monetary constraints in training entry, for instance, will increase R&D employees’ share of the workforce by 15 p.c and boosts transformative entrepreneurs’ share by 7 p.c, with each results concentrated amongst high-ability people from low-income households. As well as, the tempo of financial progress will increase by 11 p.c.
Provide-side adjustments alone generate solely 60 p.c of the overall progress impact, with the remaining 40 p.c stemming from elevated demand for R&D employees by extra transformative entrepreneurs. This illustrates the symbiotic relationship between these entrepreneurs and R&D employees.
Coverage-wise, subsidies to technical training outperform R&D and startup subsidies, producing round 4 instances as a lot preliminary return at low budgets by unlocking entry to revolutionary careers for gifted people from deprived backgrounds. These simulations counsel that it’s wise to combine the completely different subsidies to collectively stimulate the provision and demand sides of the innovation pipeline.
Conclusions
This piece explores the macroeconomics of entrepreneurship utilizing wealthy microdata. The proof illustrates that variations between entrepreneur varieties are stark, and this has substantial implications for combination innovation and progress.
The symbiotic relationship between transformative entrepreneurs and technical employees signifies that insurance policies affecting one group additionally affect the opposite. Schooling subsidies show handiest as a result of they concurrently enhance each the provision of R&D expertise and demand for R&D expertise from the pool of innovation-focused entrepreneurs. Insurance policies that develop ecosystems of expertise foster connections between the builders of firms and the builders of concepts. This lesson applies broadly to innovation ecosystems: a thriving financial system emerges from many interconnected components working collectively.
Ufuk Akcigit is a professor of economics on the College of Chicago.
Harun Alp is a principal economist within the Rising Market Economies part of the Board of Governors of the Federal Reserve System.
Jeremy Pearce is a analysis economist within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Marta Prato is an assistant professor of economics at Bocconi College.
The best way to cite this submit:
Ufuk Akcigit, Harun Alp, Jeremy Pearce, and Marta Prato, “Which Entrepreneurs Increase Productiveness? ,” Federal Reserve Financial institution of New York Liberty Road Economics, January 5, 2026, https://doi.org/10.59576/lse.20260105
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Disclaimer
The views expressed on this submit are these of the creator(s) and don’t essentially mirror the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the accountability of the creator(s).
