Where Sentence Is Served: Entrepreneurship and Socioeconomic Mobility Among Ex-Offenders

Entrepreneurship is often promoted as a pathway to upward mobility, especially for those who face barriers in traditional labor markets. However, whether and when entrepreneurship truly improves the long-term prospects of individuals with criminal records remains poorly understood. This study examines how the type of sentences—community service versus short incarceration—shapes ex-offenders’ employment routes and socioeconomic outcomes. Using three decades of Danish registry data, we compare individuals convicted of similar offenses but given different sentences and follow their trajectories over time. We find that incarceration substantially increases the likelihood that ex-offenders enter entrepreneurship as an alternative to wage work. However, this career path proves costly: compared with those who secure regular employment, individuals who pursue entrepreneurship after release earn persistently lower income and are more likely to reoffend. Mechanism analyses show that transitions into entrepreneurship concentrate among groups facing the steepest hiring barriers—foreign-born individuals, those without vocational training, residents of high-unemployment areas, and offenders convicted of property crimes or serving longer sentences—suggesting that entrepreneurship often reflects “push” rather than “pull” dynamics. Relative to unemployment, entrepreneurship is associated with modestly lower recidivism but similar income penalties. Our findings add nuance to the narrative of entrepreneurship as an emancipatory route for marginalized populations. They highlight the risks of relying on entrepreneurship as a re-integration strategy and underscore the need for organizational and policy interventions that expand access to stable jobs and provide targeted support for people with criminal records.

Funding: Financial support from the Carlsberg Foundation (Carlsbergfondet) [Grant CF21-0156] is gratefully acknowledged.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2024.19965.