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Start-up subsidies in East Germany: finally, a policy that works?

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  • Marco Caliendo

Abstract

Purpose - The purpose of the paper is to estimate the effectiveness of two start-up programs (bridging allowance and start-up subsidy) in East Germany. Design/methodology/approach - Using a combination of administrative data from the Federal Employment Agency and a follow-up survey (for roughly 1,300/1,000 participants/non-participants), the analysis is based on the conditional independence assumption. Kernel matching estimators are applied to estimate the treatment effects and test the sensitivity of the results using a conditional difference-in-differences approach. Findings - At the end of the observation period both programs are effective: unemployment rates of participants are lower, and employment rates and personal income are higher when compared to non-participants. Additionally, first descriptive evidence of the additional employment effects through direct job creation is presented, which is quite significant for the bridging allowance and negligible for participants in the start-up subsidy. Research limitations/implications - Participants in the start-up subsidy are in their third year of participation at the end of the observation period and mostly still receive further support (although at a reduced rate). Therefore, the results for this program have to be treated as preliminary. Practical implications - In contrast to other active labor market programs that have been evaluated recently (including job-creation schemes and vocational training programs) this paper finds considerable positive effects for start-up subsidies. Hence, programs aimed at turning the unemployed into entrepreneurs may be a promising strategy in East Germany. Originality/value - This is one of the first studies that allows inferences to be drawn about the effectiveness of start-up programs in East Germany. Most previous studies on the effectiveness of active labour market policies in the Eastern part of Germany neglected these programs.

Suggested Citation

  • Marco Caliendo, 2009. "Start-up subsidies in East Germany: finally, a policy that works?," International Journal of Manpower, Emerald Group Publishing, vol. 30(7), pages 625-647, November.
  • Handle: RePEc:eme:ijmpps:v:30:y:2009:i:7:p:625-647
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    References listed on IDEAS

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    1. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
    2. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643, April.
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    4. Marco Caliendo & Alexander Kritikos, 2010. "Start-ups by the unemployed: characteristics, survival and direct employment effects," Small Business Economics, Springer, vol. 35(1), pages 71-92, July.
    5. Marco Caliendo & Alexander S. Kritikos, 2009. "Die reformierte Gründungsförderung für Arbeitslose - Chancen und Risiken," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(2), pages 189-213, May.
    6. Marco Caliendo & Viktor Steiner, 2005. "Aktive Arbeitsmarktpolitik in Deutschland: Bestandsaufnahme und Bewertung der mikroökonomischen Evaluationsergebnisse," Discussion Papers of DIW Berlin 515, DIW Berlin, German Institute for Economic Research.
    7. Marco Caliendo & Reinhard Hujer, 2006. "The microeconometric estimation of treatment effects—An overview," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 90(1), pages 199-215, March.
    8. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, February.
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    10. Hans J. Baumgartner & Marco Caliendo, 2008. "Turning Unemployment into Self-Employment: Effectiveness of Two Start-Up Programmes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(3), pages 347-373, June.
    11. Biewen, Martin & Fitzenberger, Bernd & Osikominu, Aderonke & Waller, Marie, 2007. "Which Program for Whom? Evidence on the Comparative Effectiveness of Public Sponsored Training Programs in Germany," IZA Discussion Papers 2885, Institute for the Study of Labor (IZA).
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    Citations

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    Cited by:

    1. Hans J. Baumgartner & Marco Caliendo, 2008. "Turning Unemployment into Self-Employment: Effectiveness of Two Start-Up Programmes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(3), pages 347-373, June.
    2. Marco Caliendo & Steffen Künn, 2015. "Getting back into the labor market: the effects of start-up subsidies for unemployed females," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(4), pages 1005-1043, October.
    3. Caliendo, Marco, 2009. "Income Support Systems, Labor Market Policies and Labor Supply: The German Experience," IZA Discussion Papers 4665, Institute for the Study of Labor (IZA).
    4. Marco Caliendo & Jens Hogenacker, 2012. "The German labor market after the Great Recession: successful reforms and future challenges," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-24, December.
    5. Heyer, Gerd & Koch, Susanne & Stephan, Gesine & Wolff, Joachim, 2011. "Evaluation der aktiven Arbeitsmarktpolitik: Ein Sachstandsbericht für die Instrumentenreform 2011 (Evaluation of active labor market programs : a summary of recent results for the German program refor," IAB Discussion Paper 201117, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    6. Moral-Arce, Ignacio & Martín-Román, Javier & Martín-Román, Ángel L., 2018. "Cessation of activity benefit of Spanish self-employed workers: a heterogeneous impact evaluation," MPRA Paper 85111, University Library of Munich, Germany.
    7. Evers, Katalin & Schleinkofer, Michael, 2015. "Der Gründungszuschuss vor und nach der Reform : same, but different: Ein Vergleich der Teilnehmerstrukturen," IAB-Forschungsbericht 201505, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    8. Magnus Lofstrom, 2013. "Does self-employment increase the economic well-being of low-skilled workers?," Small Business Economics, Springer, vol. 40(4), pages 933-952, May.
    9. L. Behrenz & L. Delander & J. Månsson, 2016. "Is Starting a Business a Sustainable way out of Unemployment? Treatment Effects of the Swedish Start-up Subsidy," Journal of Labor Research, Springer, vol. 37(4), pages 389-411, December.
    10. Gerd Heyer & Susanne Koch & Gesine Stephan & Joachim Wolff, 2012. "Evaluation der aktiven Arbeitsmarktpolitik: Ein Sachstandsbericht für die Instrumentenreform 2011," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 45(1), pages 41-62, March.

    More about this item

    Keywords

    Subsidies; Business formation; Self employed workers; Germany;

    JEL classification:

    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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