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Reducing Start-up costs for New Firms: The Double Dividend on the Labor Market

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Author Info

  • Paul Frijters
  • Uwe Dulleck
  • Rudolf Winter-Ebmer

    (School of Economics and Finance, Queensland University of Technology)

Abstract

Starting a firm with expansive potential is an option for educated and high-skilled workers. If there are labor market frictions, this additional option can be seen as reducing the chances of ending up in a low-wage job and hence as increasing the incentives for education. In a matching model, we show that reducing the start-up costs for new firms results in higher take-up rates of education. It also gives rise through a thick-market externality to higher rates of job creation for high-skilled labor as well as average match productivity. We provide empirical evidence to support our argument.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2006/WP208a.pdf
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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 208a.

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Length: 22 pages
Date of creation: 15 Jun 2006
Date of revision:
Publication status: published
Handle: RePEc:qut:dpaper:208a

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Postal: GPO Box 2434, BRISBANE QLD 4001
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Web page: http://www.bus.qut.edu.au/faculty/economics/
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Related research

Keywords: Matching; education; start-up costs; venture capital; bureaucratic hurdles;

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References

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  1. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," Working Paper Series rwp01-015, Harvard University, John F. Kennedy School of Government.
  2. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800 Elsevier.
  3. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 779-804, August.
  4. Winter-Ebmer, Rudolf & Wirz, Aniela, 2002. "Public Funding and Enrolment into Higher Education in Europe," IZA Discussion Papers 503, Institute for the Study of Labor (IZA).
  5. Ansgar Belke & Rainer Fehn & Neil Foster, 2003. "Does Venture Capital Investment Spur Employment Growth?," CESifo Working Paper Series 930, CESifo Group Munich.
  6. Joshua S. Gans & David H. Hsu & Scott Stern, 2000. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," NBER Working Papers 7851, National Bureau of Economic Research, Inc.
  7. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  8. Masters, Adrian M, 1998. "Efficiency of Investment in Human and Physical Capital in a Model of Bilateral Search and Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 477-94, May.
  9. Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Justin van der Sluis & Mirjam van Praag & Wim Vijverberg, 2003. "Entrepreneurship Selection and Performance," Tinbergen Institute Discussion Papers 03-046/3, Tinbergen Institute, revised 24 Sep 2004.
  11. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
  12. Audretsch, David B. & Santarelli, Enrico & Vivarelli, Marco, 1999. "Start-up size and industrial dynamics: some evidence from Italian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 965-983, October.
  13. Burdett, Ken & Smith, Eric, 2002. "The low skill trap," European Economic Review, Elsevier, vol. 46(8), pages 1439-1451, September.
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Citations

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Cited by:
  1. Naude, Wim, 2009. "Out with the sleaze, in with the ease: Insufficient for entrepreneurial development?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Gaetano Lisi & Maurizio Pugno, 2011. "Tax Morale, Entrepreneurship, and the Irregular Economy," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(2), pages 116-131, August.
  3. Lee G. Branstetter & Francisco Lima & Lowell J. Taylor & Ana Venâncio, 2010. "Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal," NBER Working Papers 16473, National Bureau of Economic Research, Inc.
  4. Djankov, Simeon, 2008. "The Regulation of Entry: A Survey," CEPR Discussion Papers 7080, C.E.P.R. Discussion Papers.
  5. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204, October.
  6. Raquel Fonseca & Natalia Utrero González, 2004. "Do Market Regulation and Financial Imperfections Affect Firm Size? New Empirical Evidence," CSEF Working Papers 119, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  7. Lisi, G., 2011. "Entrepreneurship, On-the-job Search and Informal Jobs," Journal of the New Economic Association, New Economic Association, issue 9, pages 33-46.
  8. Lisi GAETANO, 2010. "The Unemployment Volatility Puzzle: The Role Of The Underground Economy," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(2(12)/Sum), pages 59-69.
  9. Frijters, Paul & Kong, Tao & Meng, Xin, 2011. "Migrant Entrepreneurs and Credit Constraints under Labour Market Discrimination," IZA Discussion Papers 5967, Institute for the Study of Labor (IZA).

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