“Fine...I’ll do it myself”: Lessons from self-employment grants in a long recession period

Abstract

This paper evaluates the effect of a self-employment grant scheme for unemployed individuals—designed to ease the first 12 months of business operation—on firm growth, survival, and labor market reintegration in Croatia in the 2010–2017 period. Grants offered a moderate amount of finances (up to 50% of average annual gross salary) and absorbed only 5% of funds allocated to active labor market policies (ALMPs), but accounted for 10% of new firms opened throughout the years. We contribute to the literature on self-employment grants with several novel findings. Exploiting the longitudinal structure of the unemployment episodes dataset, we find that individuals who finish their spell with a grant have a significantly lower probability of returning to unemployment. The policy is particularly effective for individuals who would have otherwise had labor market opportunities (men, more educated, prime-age workers, previously employed), individuals who became unemployed after inactivity and lost their job due to a firm's closure—which demonstrates that self-employment subsidies can be effective in ameliorating unemployment. However, the policy was not effective for longer unemployed individuals. At the firm level, we find descriptive evidence that limited liability firms opened via a grant have lower growth potential and worse survival profile, while unlimited liability firms—even though a sizable portion of them closes after a required 12-month grant period—have a more favorable survival profile. Finally, we also find that the effectiveness of these grants has increased throughout the years, indicating toward the direction of institutional learning.

Opportunities or Threats? The Role of Entrepreneurial Risk Perception in Shaping the Entrepreneurial Motivation

“…For entrepreneurs motivation driven by opportunity, the main role of entrepreneurship policy is to provide entrepreneurial opportunities and support entrepreneurship programs, operations, resources, etc., so as to improve the confidence of college students in entrepreneurship. However, studies have found that government entrepreneurship measures, such as the provision of start-up grants, may have some positive significance in terms of increasing employment, but not for economic growth and entrepreneurial innovation (Caliendo 2016;Srhoj and Zilic 2021), which reminds the government to think about whether the main goal of entrepreneurship policy in the current environment is to create more jobs or to encourage more businesses with good prospects to grow rapidly. College students' capabilities to deal with entrepreneurial risks is obviously weak, so colleges and universities should strengthen the education on entrepreneurial risks, such as the knowledge of risk identification, judgment, and avoidance, so as to improve their risk coping ability and entrepreneurial self-efficacy.…”

“…In general, individuals feature a high propensity for risk, a strong sense of self-efficacy, and a wealth of resources and they are more likely to view risk as an opportunity, and thus generate entrepreneurial motivation. On the other hand, influenced by external factors, such as entrepreneurship policy, entrepreneurship education (Song and Mu 2022), self-employment grants (Caliendo 2016;Srhoj and Zilic 2021), etc. Usually, strong government measures, financial support, and good entrepreneurship education can mitigate the impact of entrepreneurial risks and encourage more potential entrepreneurs.…”

Solo self‐employment––Key policy challenges

“…The problem is that positive effects are often short‐lived as the survival rates of businesses founded by unemployed are relatively low. A sizable portion of subsidized start‐ups closes after a required minimum period of activity (typically 12 months) (Evans & Leighton, 1990; Srhoj & Zilic, 2021). Those surviving usually remain solo and the incidents of “double dividend” derived from additional jobs created are rare (Dvoulety, 2022).…”

A better performing labour market for inclusive convergence in Croatia

“…The share neither working nor in education is higher than in many OECD countries (Figure 10). This joblessness weighs heavily on those individuals' life-time employment, income and well-being prospects (Schmillen and Umkehrer, 2017 [16]). Efforts are underway to improve the vocational education system, and the preparation for work from schooling, and realising these can help improve the job-readiness of Croatia's youth.…”