Former in­mates are more likely to be­come en­tre­pren­eurs

Prison or community service?

For the convicted individual, the answer can have consequences far beyond the sentence itself, new research shows.

If one person is sentenced to serve a year behind bars, while another – with very similar characteristics – is required to perform community service for the same crime, the former is more likely to become an entrepreneur afterwards, while the latter is more likely to secure a regular paid job.

However, these newly established entrepreneurs tend to perform poorly. They earn less than those who pursue regular employment, and they are more likely to reoffend.

Study challenges prevailing narrative

“We unfortunately have to conclude that entrepreneurship does not always have the desired effect when it comes to integrating and supporting people, as many tend to believe. The idea of entrepreneurship as a universal solution to reintegration of marginalised individuals does not always hold,” says Vera Rocha, professor at CBS.

She is one of the authors behind the study and researches various aspects of entrepreneurship, including inequality, gender and migration.

The study examines what happens when people with a criminal conviction attempt to re-enter the labour market. The researchers compare career paths among fairly similar individuals, convicted of similar crimes, but given different types of sentences.

At the same time, the study challenges earlier research suggesting that entrepreneurship leads to social mobility and new opportunities, especially when it comes to more marginalised individuals. 

50,000 convictions provide rare insight

Together with Stefanie Sunao, a former postdoc, the authors used Danish registry data covering about 50,000 cases spanning nearly three decades from 1991 to 2019. During the same period, a legislative reform in Denmark gradually expanded the use of community service as an alternative to imprisonment for certain offenses.

The researchers focused exclusively on cases in which individuals received short prison sentences of up to one year.

They then compared those who served their sentence in prison with those whose sentence was converted into community service. They also ensured that the individuals were comparable in terms of gender, age, ethnicity, education level, labour market status, type of crime and timing of the offence.

Across the group, most individuals had typically been convicted of theft, minor assault or robbery.

“We followed the group for five years after their sentence. The pattern was clear. Entrepreneurs performed worse than employees. Their levels of disposable income were lower, and they were also more likely to reoffend,” says Vera Rocha.

Entrepreneurship as a last resort

“When many former inmates still end up becoming entrepreneurs, it is rarely because they actively choose to start their own business. Instead, they are often rejected by employers and, in reality, become entrepreneurs out of necessity,” she explains. 

Indeed, their study finds that formerly incarcerated individuals pursue entrepreneurship instead of regular employment especially when they face larger barriers in the labour market – when they lack a vocational education, are of foreign nationality, or lived in municipalities with higher unemployment rates at the time.

“At the same time, they are likely to lack networks, particular skills and other resources necessary to succeed as a new business owner. In contrast, those sentenced to community service are better able to maintain a connection to the labour market. Community service therefore has a stronger effect than imprisonment when it comes to establishing oneself in the labour market,” she concludes.

According to Vera Rocha, the study takes a broad view of entrepreneurship. In many cases, this involves sole proprietorships, where the former offender attempts to establish a small kiosk, a cleaning company or a small café or restaurant.

Establishing a foothold requires support

The findings suggest that entrepreneurship in itself does not solve the challenges former offenders face in the labour market. If society wants better reintegration, more is needed than simply the opportunity to start a business.

“If we want to help former inmates enter the labour market, they need access to knowledge, financing and networks. For some, wage subsidies with established entrepreneurs and other incentives for employers to onboard these individuals in their workforce could be an option,” says Vera Rocha and underlines that after some time new research should test whether these solutions really work.

The study is titled ‘Where Sentence Is Served: Entrepreneurship and Socioeconomic Mobility Among Ex-Offender.’ It is published in Organization Science, one of the journals included in the FT50 and UTD lists, and one of the highest-ranked journals in the Academic Journal Guide.

This research was conducted with the support from Carlsberg Foundation via a Semper Ardens: Accelerate grant.