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Necessity and Opportunity Entrepreneurs and Their Duration in Self-employment: Evidence from German Micro Data

Abstract

Using data from the German Socio-Economic Panel Study (GSOEP), we analyze whether necessity entrepreneurs differ from opportunity entrepreneurs in terms of self-employment duration. Using univariate statistics, we find that opportunity entrepreneurs remain in self-employment longer than necessity entrepreneurs. However, after controlling for the entrepreneurs’ education in the professional area where they start their venture, this effect is no longer significant. We therefore conclude that the difference observed is not an original effect but rather is due to selection. We then go on to discuss the implications of our findings for entrepreneurship-policy making, and give suggestions to improve governmental start-up programs.

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Notes

  1. For more about the GSOEP, please refer to Frick (2005).

  2. We excluded the six waves from 1984 to 1989, since only West German entrepreneurs would be included, leading to a systematic bias of the dependent variable duration in self-employment.

  3. See Alsos and Kolvereid (1998) for a discussion of start-ups by serial entrepreneurs.

  4. See Parker (2004) for a description of the problems associated with unpaid family workers.

  5. For the response categories that do not match with necessity or opportunity entrepreneurship, see Table 7.

  6. The high share of East Germans in our sample is also due to deliberate oversampling in the GSOEP (Haisken-DeNew and Frick 2003).

  7. The GSOEP asks the participants to report job satisfaction on a scale from 1 (totally unhappy) to 10 (totally happy). Frey and Benz (2003) discuss this scale in more detail.

  8. This applies also to the complimentary log-log model.

  9. Under the “Ich-AG” program, a start-up entrepreneur was granted a monthly subsidy of 600 in the first year, 360 μ in the second year, and 240 μ in the third year of the start-up (data from 2005). The so called “Überbrückungsgeld” (bridging allowances) constitutes another subsidy designed for start-ups out of unemployment. Hinz and Jungbauer-Gans (1999) as well as Pfeiffer and Reize (2000) describe the programme in more detail.

  10. For more information on the adjustments, see Bundesministerium für Wirtschaft und Technologie (2006).

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Acknowledgement

We would like to thank Oliver Alexy, Hans-Jürgen Block, Dietmar Harhoff, George Saridakis, Nico Siegel, Andrew Smith, Julian Süß, Marcus Wagner, Marc Weiglein, Hagen Worch and the participants in the institute seminar at the Max-Planck-Institute of Economics Jena, the Schöller Chair in Technology and Innovation Management, the G-Forum 2006, and the workshop on “entrepreneurship, firm demography and industrial location” at WIFO for helpful comments and suggestions. All remaining errors are ours.

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Correspondence to Jörn Block.

Appendices

Appendix

A. Determinants of survival

Table 4 Determinants of survival in self-employment

B. Sample, variables and descriptive statistics

Table 5 New entries in self-employment per year: necessity vs opportunity entrepreneurs
Table 6 Studies on necessity entrepreneurship in Germany
Table 7 Description of variables
Table 8 Descriptive statistics
Table 9 Correlations

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Block, J., Sandner, P. Necessity and Opportunity Entrepreneurs and Their Duration in Self-employment: Evidence from German Micro Data. J Ind Compet Trade 9, 117–137 (2009). https://doi.org/10.1007/s10842-007-0029-3

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  • DOI: https://doi.org/10.1007/s10842-007-0029-3

Keywords

  • self-employment
  • firm survival
  • necessity entrepreneurs
  • opportunity entrepreneurs
  • hazard rates
  • GSOEP

JEL Classification

  • J23
  • J24
  • M13
  • C41