Small Business Economics

, Volume 35, Issue 1, pp 71–92

Start-ups by the unemployed: characteristics, survival and direct employment effects

Article

Abstract

Fostering and supporting start-up businesses by unemployed persons has become an increasingly important issue in many European countries. These new ventures are being subsidized by various governmental programs. Empirical evidence on skill-composition, direct job creation and other key variables is rather scarce, largely because of inadequate data availability. We base our analysis on unique survey data containing a representative sample of over 3,100 start-ups founded by unemployed persons in Germany and subsidized under two different schemes: the bridging allowance (BA) and the start-up-subsidy (SUS). We are able to draw on extensive pre- and post-founding information concerning the characteristics of the business (start-up capital, industry, etc.) and of the business founders (education, motivation, preparation, etc.). Our main results are: (1) The two programs attracted very different business founders (higher skilled for the BA, more female persons for the SUS), and different businesses were created (less capital intensive for the SUS). (2) We find that formerly unemployed founders are motivated by push and pull factors. (3) Survival rates 2.5 years after business founding are quite high (around 70%) and similar for both programs and across gender. (4) However, the newly developed businesses differ significantly in terms of direct employment effects. While around 30% of the founders with the BA already have at least one employee, this is true for roughly 12% of the founders with the SUS.

Keywords

Start-up subsidies Self-employment Unemployment Direct employment effects Survival 

JEL Classifications

J68 M13 L26 

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Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.Institute for the Study of Labor (IZA)BonnGermany
  2. 2.Department of Innovation, Manufacturing, ServiceGerman Institute for Economic Research (DIW)BerlinGermany

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