More and more science and engineering graduates are pursuing jobs in finance, and financial firms are courting universities to find the best graduating talent.  Increasing college tuition prices results in higher student debt upon graduation, which contributes to the move toward lucrative industries like finance.  Consider the systemic effects of some of the best technical minds swept into finance:

When most sectors of the economy grow, new companies are created. The authors [Kedrosky and Stangler] found, however, that the finance sector is not driving firm formation; it is cannibalizing entrepreneurship in the U.S. economy by offering wage and skill premiums to individuals who might otherwise have started companies. It is also causing far greater volatility among publicly traded firms and a reduction in the quality of businesses started.

The report concludes that a shrinking finance sector will likely lead to a higher entrepreneurship rate and the creation of companies with greater social value, and still provide the financial intermediation services that are most important to young companies.

from Vivek Wadhwa’s article regarding the report ‘The Cannibalization of Entrepreneurship in America: Expanding Financial Sector Depleting Pool of Potential High-Growth Company Founders’ available here.

I am curious of ways in which Universities and governments can support entrepreneurship both during education, and for recent college graduates.  Schools can set up programs and classes to help students think about creating jobs based on what they have learned.

Here in Boston there are resources for aspiring entrepreneurs, and plenty of events revolving around the startup scene.  Every day I find out about inspiring resources elsewhere as well, such as VeloCity at the University of Waterloo.  Providing tools and exposure to innovation while still in school will expose upcoming graduates to a wider set of career possibilities.

But still such endeavors do not address student loan debts and the monetary incentive for talented students to pursue finance.

The report makes an optimistic prediction for the future:

When the financial sector shrinks as a share of GDP, as it is likely to do in the near future, the study predicts it will coincide with a number of other trends and help increase the rate of new business creation, as well as providing an environment for higher social value from new companies. The authors note that while a “smaller” financial services sector will be smaller relative to recent history, it still likely will be larger than in prior decades, meaning that it could continue to provide the financial intermediation services young companies need most.