How does entry regulation influence entry into self‐employment and occupational mobility?¹

Abstract

We analyse how an entry regulation that imposes a mandatory educational standard affects entry into self-employment and occupational mobility. We exploit German reunification as a natural experiment and identify regulatory effects by comparing differences between regulated 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 self-employment 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.

Interacting Labor and Product Market Regulation and the Impact of Immigration on Native Wages

“…Prantl and Spitz-Oener, 2009, show that the firm entry regulation that we focus on lowered entry into self-employment during the 1990s. See Appendix A for further discussion.…”

Entry Regulation and Entrepreneurship: Empirical Evidence from a German Natural Experiment

“…Kaplan et al (2007) and Bruhn (2008) also present evidence that lower entry costs increase entry into entrepreneurship. Bruhn (2008), Ardagna andLusardi (2008, 2009), and Prantl and Spitz-Oener (2009) add to the almost unanimous evidence against entry regulation using microdata. The latter discuss regulatory effects in light of the German unification in 1990, explicitly considering the educational entry requirement in craftsmanship.…”

The impact of firm entry regulation on long-living entrants

“…existing microdata evidence Microdata evidence on the relation between the entry regulation in the German Trade and Crafts Code and entry into self-employment after German reunification has previously been provided by Prantl and Spitz-Oener (2009). In their study, the effects on a general measure of entry into self-employment are investigated; the measure considers entry decisions taken any time during the first decade after reunification.…”

“…To account for such unobserved factors, I exploit a substantial natural experiment in entry regulation accompanying German reunification (see also Prantl and Spitz-Oener 2009). The natural experiment provides data variation across regions and occupations that allows for taking two types of systematic, unobserved effects into account when estimating the regulatory effects of interest: (1) additive unobserved effects on the outcome variable Y that differ across the groups of regulated and unregulated occupations while being constant across regions, and (2) additive unobserved effects on Y that are common to all occupations but differ across regions.…”

“…From the methodological point of view, the empirical analysis presented here is most closely related to Prantl and Spitz-Oener (2009), who implement the same empirical approach. Using a natural experiment in entry regulation and allowing for two types of additive unobserved effects, the approach is similar to standard difference-in-difference setups that exploit data variation across time and regions or industries following from reforms of entry 1 Djankov (2009) and Schiantarelli (2008) survey further related studies.…”