Why do some entrepreneurs drive economic growth while others do not? This piece discusses new work that studies entrepreneurs using a comprehensive dataset from Denmark. We study who becomes an entrepreneur, along with their hiring and business decisions, and find that a distinct minority are “transformative.” These individuals, who generate disproportionate productivity gains, tend to have high IQ scores, be well-educated, and hire technical (R&D) workers. The data support the idea of productivity growth being driven by the symbiotic relationship between transformative entrepreneurs and R&D workers. For policymakers, the lesson is that when an economy has more R&D workers and transformative entrepreneurs, they sustain higher long-run productivity growth.
Facts on Entrepreneurs
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Our work develops new facts using comprehensive data on individuals and firms from Denmark Statistics. As an example, individuals’ IQ test scores come from a military test that is generally taken in very early adulthood. We combine this measure with details of entrepreneurs’ education and parental backgrounds and firm performance to connect individuals’ backgrounds with their firms. The data are discussed in further detail in our working paper.
We identify entrepreneurs as individuals who register as primary founders of firms with at least one employee.Among this group, we distinguish transformative entrepreneurs, those who hire at least one R&D worker, from non-transformative entrepreneurs, who do not employ technical personnel. This classification captures innovation intent rather than performance outcomes. R&D workers are defined as individuals employed in occupations with high patenting intensity, reflecting their direct involvement in innovation-related activities.
The data reveal striking patterns. The first chart shows how the shares of entrepreneurs and R&D workers vary across IQ deciles. The pattern is reversed across the two groups: individuals with higher IQs are more likely to be R&D workers, but less likely to be entrepreneurs.
R&D Workers Tend to Have Higher IQs than Entrepreneurs
Note: Average employment by firm age and entrepreneur type, normalized to one at age zero.
Revenue trajectories mirror employment patterns. Transformative firms reach seven times their initial revenue by year ten, while non-transformative firms plateau at 2.5 times initial levels. Exit rates differ modestly between firm types: in their first year, 16 percent of non-transformative firms exit, compared to 12 percent of transformative firms, though both rates converge to around 8-9 percent by year eight.
Industry sorting by IQ also exhibits intuitive patterns. Low-IQ entrepreneurs concentrate in conventional sectors like trade/transport and construction/agriculture,while high-IQ entrepreneurs dominate knowledge-intensive industries,with the knowledge/interaction sector representing 50 percent of entrepreneurial activity in the top IQ deciles.
The Macroeconomics of Entrepreneurship
We develop a quantitative model to study the macroeconomic effects of entrepreneurship on innovation and economic growth, incorporating individual differences in ability, family income, and entrepreneurial exposure. in the model, individuals choose between production work and R&D careers initially, then decide later in life whether to become an entrepreneur, consistent with the age profile in the data. In line with the data, educational attainment, necessary for a technical career path, is persistent by both ability and family resources. The model replicates key empirical patterns: negative selection into general entrepreneurship with respect to ability, positive selection into transformative entrepreneurship and R&D work with respect to ability, and the observed correlation between firm performance and entrepreneur type.
The model captures the symbiotic relationship between transformative entrepreneurs and R&D workers by linking individual career choices to firm-level innovation decisions.This microeconomic foundation enables us to trace how barriers and choices at the individual level aggregate to economy-wide productivity effects through both supply-side constraints (shaped by the availability of R&D workers) and demand-side limitations (determined by the pool of transformative entrep
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Which Entrepreneurs Boost Productivity?
New research from Ufuk Akcigit, Harun Alp, Jeremy Pearce, and Marta Prato examines the crucial role entrepreneurs play in driving productivity growth, and finds that who becomes an entrepreneur matters significantly. The study challenges the conventional wisdom that simply increasing the number of entrepreneurs is the key to economic progress. Instead, it highlights the importance of “quality” entrepreneurs – those with specific skills and characteristics – in fostering innovation and boosting overall productivity.
The Productivity Puzzle and the Role of Entrepreneurs
For years, economists have observed a slowdown in productivity growth in many advanced economies. A common proposed solution has been to encourage entrepreneurship, with the idea that new firms and innovative ideas will revitalize economic output. However, recent data suggests that a surge in entrepreneurship doesn’t automatically translate into higher productivity. https://www.newyorkfed.org/research/economists/akcigit
This research delves deeper, investigating the characteristics of entrepreneurs that are moast strongly associated with productivity gains. The authors argue that not all entrepreneurs are created equal, and that focusing on attracting and supporting high-potential founders is more effective than simply increasing the quantity of new businesses.
Key Findings: Skill Sets and Productivity Gains
The study identifies specific skills and backgrounds that correlate with higher productivity outcomes. These include:
* STEM (Science,Technology,Engineering,and Mathematics) Expertise: Entrepreneurs with a strong STEM background are more likely to develop and implement innovations that lead to important productivity improvements.
* Prior Experience in Innovative Firms: Individuals who have previously worked in companies known for their innovation are better equipped to create and scale successful ventures. This suggests that experience within a culture of innovation is a valuable asset.
* Management skills: The ability to effectively manage resources, teams, and operations is crucial for translating innovative ideas into tangible productivity gains.
* Access to Finance: While not a skill per se, the ability to secure funding is essential for scaling up innovative ventures and realizing their full potential.
The researchers found that entrepreneurs possessing these characteristics tend to create firms that not only grow faster but also contribute more to overall productivity. Conversely, a large influx of entrepreneurs lacking these skills may lead to a proliferation of less productive businesses, diluting the overall impact on economic growth.
Implications for Policy
These findings have crucial implications for policymakers seeking to promote productivity growth. Rather than broad-based initiatives to encourage entrepreneurship, policies should focus on:
* Investing in STEM Education: Strengthening STEM education at all levels can create a pipeline of entrepreneurs with the technical skills needed to drive innovation.
* Supporting Innovation Hubs: Creating and supporting ecosystems that foster innovation, such as research parks and incubators, can provide entrepreneurs with access to resources, mentorship, and funding.
* Promoting Knowledge Transfer: Facilitating the movement of skilled workers between innovative firms and new ventures can help disseminate best practices and accelerate the pace of innovation.
* Targeted Financial Support: Providing targeted financial assistance to entrepreneurs with high-growth potential can help them overcome funding barriers and scale their businesses.
Ufuk Akcigit is a research economist at the Federal Reserve Bank of New York. Harun Alp is an assistant professor of finance at the University of Michigan’s Ross School of Business. Jeremy Pearce is a research economist in the federal Reserve Bank of New York’s Research and Statistics Group. Marta Prato is an assistant professor of economics at Bocconi University.
How to Cite This Post
Ufuk akcigit, Harun Alp, Jeremy Pearce, and Marta Prato, “Which Entrepreneurs Boost Productivity?,” Federal Reserve Bank of new York Liberty Street Economics, January 5, 2026,[https://libertystreeteconomicsnewyorkfedorg/2026/01/which-entrepreneurs[https://libertystreeteconomicsnewyorkfedorg/2026/01/which-entrepreneurs