Labor Flexibility and the Prevalence of High-Growth Entrepreneurial Activity¹

Entrepreneurs are embedded in country-specific institutional arrangements that may facilitate or constrain their growth potential. This study addresses country conditions predicting rates of high-growth entrepreneurship—entrepreneurial ventures leading to the hiring of 20 or more employees. We analyze the role of labor flexibility, together with cultural, economic, and policy conditions in 32 countries, in predicting high-growth entrepreneurship. Results of the study indicate that labor flexibility is a significant predictor of the prevalence rates of high-growth entrepreneurship. Labor flexibility also predicts high-growth entrepreneurship when controlling for countries’ levels of early-stage entrepreneurial activity, indicating that it is related to the growth of existing firms, rather than simply the number of people entering into entrepreneurship.