Empirical Economics

, Volume 47, Issue 3, pp 1067-1101

First online:

Entry regulation and entrepreneurship: a natural experiment in German craftsmanship

  • Davud Rostam-AfscharAffiliated withDepartment of Public Economics, German Institute for Economic Research (DIW Berlin)Department of Economics, Freie Universität Berlin Email author 

Rent the article at a discount

Rent now

* Final gross prices may vary according to local VAT.

Get Access


This paper uses the 2004 amendment to the German Trade and Crafts Code as a natural experiment for assessing the causal effects of this reform on the probabilities of being self-employed and of transition into and out of self-employment. This is achieved by using repeated cross-sections (2002–2009) of German microcensus data. I apply the difference-in-differences technique for three groups of craftsmen which were subject to different intensities of treatment. The results show that the complete exemption from the educational entry requirement has fostered self-employment significantly by substantially increasing the entry probabilities, while exit rates have remained unaffected. I find similar, though weaker relative effects for the treatment groups that were subject to a reduction of entry costs or a partial exemption from the entry requirements. Moreover, I consider effect heterogeneity within each of the treatment groups with respect to gender and vocational training, and show that the deregulation of entry requirements has been most effective for untrained workers.


Entrepreneurship Regulation Firm entry Natural experiment Craftsmanship

JEL Classification

L51 J24 I28 M13