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Does Quality Make a Difference?: Employment Effects of High- and Low-Quality Start-Ups

  • Michael Fritsch
  • Alexandra Schroeter

This paper investigates the impact of new firms' quality on the magnitude of their employment effects. Our results clearly show that the quality of start-ups, measured by their affiliation with sectors and innovative industries, strongly influences the direct and the overall employment contribution of new firms. In particular, start-ups in manufacturing industries generate larger direct and overall growth effects than those in services. Moreover, new businesses in innovative manufacturing and in knowledge-intensive service industries make a larger direct contribution to employment than start-ups affiliated with other industries. We also find a relatively strong overall effect of new business formation in knowledge-intensive service industries. However, the impact of start-ups in innovative manufacturing industries on overall regional employment growth is not statistically significant, which may be mainly due to their rather small share in all start-ups and because they impact more on firms and employment in other regions than do start-ups in non-innovative manufacturing. Finally, we discuss the implications for entrepreneurship policy that can be derived from our findings.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1128.

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Length: 31 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1128
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  7. Michael Fritsch & Alexandra Schroeter, 2009. "Are More Start-Ups Really Better? Quantity and Quality of New Businesses and Their Effect on Regional Development," Jena Economic Research Papers 2009-070, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
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