How does entry regulation influence entry into self-employment and occupational mobility?

Abstract

We analyze how an entry regulation that imposes a mandatory educational standard affects entry into self-employment and occupational mobility. We exploit the German reunification as a natural experiment and identify regulatory effects by comparing differences between regulated occupations and unregulated occupations in East Germany with the corresponding differences in West Germany after reunification. Consistent with our expectations, we find that entry regulation reduces entry into selfemployment and occupational mobility after reunification more in regulated occupations in East Germany than in West Germany. Our findings are relevant for transition or emerging economies as well as for mature market economies requiring large structural changes after unforeseen economic shocks. JEL: J24, J62, K20, L11, L51, M13 Keywords: Entry Regulation, Self-Employment, Occupational MobilityThe authors thank Philippe Aghion, Jan Boone, Richard Blundell, Sandra E. Black, Martin Hellwig, Jennifer Hunt, Bernd Fitzenberger, Nicola Fuchs-Schündeln, Rachel Griffith, Iris Kesternich, two anonymous referees and seminar participants at the University of California, Irvine, at the Max Planck Institute for Research on Collective Goods in Bonn, at the Universities of Freiburg, Hamburg and Tübingen, and at the SFB/TR15 Conference in Caputh for comments and discussions. The data used in this paper were obtained from the German Zentralarchiv für Empirische Sozialforschung at the University of Cologne (ZA). The data were collected by the Bundesinstitut für Berufsbildung (BIBB) and the Institut für Arbeitsmarkt-und Berufsforschung and documented by the ZA. Neither the producers of the data nor the ZA bear any responsibility for the analysis and interpretation of the data in the paper. Executive SummaryEntry regulation is widespread across countries and industries, and it arises in various forms. Restrictions to entry can have effects on firm entry, competition, factor reallocation, employment, innovation, and economic growth and can lead to inefficiencies. In this study, we analyze the consequences of an entry regulation imposing a mandatory educational standard on individuals' decisions to start new businesses and on their mobility across occupations after German reunification. The imposed entry requirement is a substantial restriction to entry in all occupations that are covered by the law.As the regulated occupations might not represent a random sample from the population of occupations we use the German reunification quasi-experiment to identify regulatory effects.After German reunification, East and West Germany -while being subject to the same lawwere in very different economic situations. West Germany represented a mature market economy with relatively stable incumbent industry structures. East Germany, instead, started its transition from a planned to a market economy where new entrepreneurial activities, firm entry, industry restructuring, factor reallocation and occupational mobility were suddenly needed to an unusually high ...