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

  • Marco Caliendo

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.

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Article provided by Emerald Group Publishing in its journal International Journal of Manpower.

Volume (Year): 30 (2009)
Issue (Month): 7 (November)
Pages: 625-647

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Handle: RePEc:eme:ijmpps:v:30:y:2009:i:7:p:625-647
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  1. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," NBER Working Papers 6699, National Bureau of Economic Research, Inc.
  2. Marco Caliendo & Alexander S. Kritikos, 2009. "Die reformierte Gründungsförderung für Arbeitslose: Chancen und Risiken," Discussion Papers of DIW Berlin 856, DIW Berlin, German Institute for Economic Research.
  3. Caliendo, Marco & Kopeinig, Sabine, 2005. "Some Practical Guidance for the Implementation of Propensity Score Matching," IZA Discussion Papers 1588, Institute for the Study of Labor (IZA).
  4. John DiNardo & Justin L. Tobias, 2001. "Nonparametric Density and Regression Estimation," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 11-28, Fall.
  5. Y Georgellis & J G Sessions & N Tsitsianis, 2005. "Self-Employment Longitudinal Dynamics: A Review of the Literature," Economic Issues Journal Articles, Economic Issues, vol. 10(2), pages 51-84, September.
  6. 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).
  7. 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.
  8. Caliendo, Marco & Hujer, Reinhard, 2005. "The Microeconometric Estimation of Treatment Effects - An Overview," IZA Discussion Papers 1653, Institute for the Study of Labor (IZA).
  9. Imbens, Guido & Abadie, Alberto, 2008. "On the Failure of the Bootstrap for Matching Estimators," Scholarly Articles 3043415, Harvard University Department of Economics.
  10. Caliendo, Marco & Hujer, Reinhard & Thomsen, Stephan L., 2005. "The Employment Effects of Job Creation Schemes in Germany: A Microeconometric Evaluation," IZA Discussion Papers 1512, Institute for the Study of Labor (IZA).
  11. 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, 06.
  12. Jose C. GALDO & Jeffrey SMITH & Dan BLACK, 2008. "Bandwidth Selection and the Estimation of Treatment Effects with Unbalanced Data," Annales d'Economie et de Statistique, ENSAE, issue 91-92, pages 189-216.
  13. Guido W. Imbens, 2004. "Nonparametric Estimation of Average Treatment Effects Under Exogeneity: A Review," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 4-29, February.
  14. Marco Caliendo & Alexander S. Kritikos, 2008. "Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects," Working Papers 008, Hanseatic University, Germany, Department of Economics.
  15. Black, Dan A. & Smith, J.A.Jeffrey A., 2004. "How robust is the evidence on the effects of college quality? Evidence from matching," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 99-124.
  16. 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.
  17. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  18. Fredriksson, Peter & Johansson, Per, 2004. "Dynamic Treatment Assignment – The Consequences for Evaluations Using Observational Data," IZA Discussion Papers 1062, Institute for the Study of Labor (IZA).
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