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Business Cycles, Unemployment and Entrepreneurial Entry: Evidence from Germany

  • Fritsch, Michael

    ()

    (University of Jena)

  • Kritikos, Alexander S.

    ()

    (DIW Berlin)

  • Pijnenburg, Katharina

    ()

    (DIW Berlin)

We investigate whether people are more willing to become self-employed during boom periods or during recessions and to what extent business cycles or unemployment levels influence entries into entrepreneurship. Our analysis for Germany reveals that there is a positive relationship between unemployment rates and start-up activities. Moreover, new business formation is higher during recessions than in boom periods. This implies that new business formation is counter-cyclical. When disentangling periods of low and high unemployment we find that the effect of unemployment on new business formation is only statistically significant if the level of unemployment is below the trend, indicating a "low unemployment retain effect".

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7852.

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Length: 41 pages
Date of creation: Dec 2013
Publication status: published in: International Entrepreneurship and Management Journal, 2015, 11(2), 267-286
Handle: RePEc:iza:izadps:dp7852
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