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Science & Technology

Gig Economy Reduces Lower Quality Entrepreneurial Activity, Study Shows

DAVID GREENE, HOST:

OK, so what happens when Uber, the on-demand car service, arrives in your town? Might get a little easier to get a ride. But there's new social science research suggesting the arrival of Uber in a metropolitan area has a big effect on local entrepreneurship. And to help draw this connection, we're joined, as we often are, by NPR's social science correspondent Shankar Vedantam. Hey, Shankar.

SHANKAR VEDANTAM, BYLINE: Hi, David.

GREENE: OK. Uber entrepreneurship - go.

VEDANTAM: (Laughter) There is data showing that Uber does have a big impact on local entrepreneurship, David. If you're a would-be entrepreneur but can't find the time to get your project off the ground, Uber might be very helpful. Here's Temple University marketing professor Brad Greenwood.

BRAD GREENWOOD: If I'm trying to get something off the ground, if I'm a nascent entrepreneur, if I'm working at Starbucks or another 9-to-5 job, I can only work when I'm not working there. Uber allows me to strategically reallocate my time so I can drive at night time in order to launch the venture.

GREENE: Oh, so you do meet a lot of Uber drivers like this, who drive late at night and say they have flexibility. And that totally clears up their day to think about other ideas and try other projects.

VEDANTAM: Exactly. But there's also an alternate theory, David. If a lot of would-be entrepreneurs start driving for Uber instead of starting a new company, Uber could lower the number of new ventures that get started.

GREENE: OK, so which is it?

VEDANTAM: (Laughter) Well, Brad Greenwood, along with his co-authors Gordon Burtch and Seth Carnahan, they analyzed what happens to campaigns launched on the crowdfunded platform Kickstarter before and after Uber arrives in town.

So they studied 172 metro areas over 21 months and tracked over 75,000 new companies. And they find the arrival of Uber has a big effect on the local entrepreneurial scene.

GREENWOOD: What we find is that the number of Kickstarter campaigns drops significantly by about 14 percent at one year out. It is a nontrivial number. I thought it was going to go up, so it was very surprising to me.

GREENE: I love when a scientist is surprised. So confirming the theory, it sounds like that it's taking entrepreneurs basically off the market because they're doing something else. They're driving cars.

VEDANTAM: Yes. But it's actually a little more complex than that. Greenwood and his colleagues analyzed which entrepreneurs are likely to drop out of the local startup scene and start driving for Uber. And what they find is that Uber does not affect them equally. Greenwood analyzed the effects of Uber on the most successful Kickstarter campaigns - these are the one that greatly exceed their fundraising targets - as well as the duds.

GREENWOOD: We see no effect on the hyper-funded campaigns, these kind of high-quality entrepreneurs that have good ideas. But the effect on the group that receives no money - it just drops like a rock.

GREENE: OK, I'm trying to be the scientist here. Is this because people who have really good ideas that are bound to be successful might be less likely to actually go drive an Uber car at night or be doing that?

VEDANTAM: I think that is the theory that will be consistent with this data. If you think of the funding that you get on a platform like Kickstarter as being a market signal of quality, Uber seems to be playing a potentially useful role by getting entrepreneurs with lower-quality projects to drop out.

GREENE: Shankar, thanks as always.

VEDANTAM: Thanks, David.

GREENE: That's Shankar Vedantam. He's NPR social science correspondent. He is also the host of a podcast that explores the unseen patterns in human behavior. The podcast is called Hidden Brain. Transcript provided by NPR, Copyright NPR.