Subsidized start-ups out of unemployment: a comparison to regular business start-ups

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Offering unemployed individuals a subsidy to become self-employed is a widespread active labor market policy strategy. Previous studies have illustrated its high effectiveness to help participants escaping unemployment and improving their labor market prospects compared to other unemployed individuals. However, the examination of start-up subsidies from a business perspective has only received little attention to date. Using a new dataset based on a survey allows us to compare subsidized start-ups out of unemployment with regular business founders, with respect to not only personal characteristics but also business outcomes. The results indicate that previously unemployed entrepreneurs face disadvantages in variables correlated with entrepreneurial ability and access to capital. 19 months after start-up, the subsidized businesses experience higher survival, but lag behind regular business founders in terms of income, business growth and innovation. Moreover, we show that expected deadweight losses related to start-up subsidies occur on a (much) lower scale than usually assumed.JEL Classification: C14, L26, J68

Self-exploitation or successful entrepreneurship? The effects of personal capital on variable outcomes from self-employment

“…In these cases, individuals enter selfemployment to work longer hours but without increased monthly profits, suggesting a form of 'self-exploitation'. This reinforces earlier findings that have found that even when the unemployed become self-employed, their earnings are lower than those entering from employment or continuing in self-employment (Caliendo et al, 2015). These results provide a basis for identifying both positive and negative outcomes from self-employment.…”

Start-up subsidies for the unemployed: Opportunities and limitations

“…A study comparing subsidized start-ups by unemployed workers with regular start-ups after 19 months finds higher survival rates for the subsidized businesses but lower income, slower growth, and less innovation [5]. A study for France finds no significant effect on turnover or employment growth rates.…”

“…Providing start-up subsidies to unemployed workers is justified by the existence of constraints to unemployed workers starting a new enterprise [5]. Severe credit constraints are one problem.…”

“…jobs created is also large, ranging from an average of 1.1 full-time equivalent jobs per survivor in Germany to less than 0.5 in France [5], [11]. The average number of jobs created by those firms who hired at least one employee is between 1.6 and 3.1 full-time equivalents.…”

“…The author is indebted to co-authors on previous joint research projects on the topic, especially Alexander Kritikos and Steffen Künn, and also Stefan Tübbicke for his research assistance. Previous work of the author contains a large number of background references for the material presented here and has been used intensively in all major parts of this article [5], [9], [13].…”