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Catching up or Lagging Behind? The Long-Term Business and Innovation Potential of Subsidized Start-Ups out of Unemployment

Author

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  • Marco Caliendo

    () (University of Potsdam, IZA Bonn, DIW Berlin, IAB Nuremberg)

  • Steffen Künn

    () (Maastricht University and ROA, The Netherlands, IZA Bonn)

  • Martin Weißenberger

    () (University of Potsdam)

Abstract

From an active labor market policy perspective, start-up subsidies for unemployed individuals are very effective in improving long-term labor market outcomes for participants. From a business perspective, however, the assessment of these public programs is less clear since they might attract individuals with low entrepreneurial abilities and produce businesses with low survival rates and little contribution to job creation, economic growth, and innovation. In this paper, we use a rich data set to compare participants of a German start-up subsidy program for unemployed individuals to a group of regular founders who started from nonunemployment and did not receive the subsidy. The data allows us to analyze their business performance up until 40 months after business formation. We find that formerly subsidized founders lag behind not only in survival and job creation, but especially also in innovation activities. The gaps in these business outcomes are relatively constant or even widening over time. Hence, we do not see any indication of catching up in the longer run. While the gap in survival can be entirely explained by initial differences in observable start-up characteristics, the gap in business development remains and seems to be the result of restricted access to capital as well as differential business strategies and dynamics. Considering these conflicting results for the assessment of the subsidy program from an ALMP and business perspective, policy makers need to carefully weigh the costs and benefits of such a strategy to find the right policy mix.

Suggested Citation

  • Marco Caliendo & Steffen Künn & Martin Weißenberger, 2019. "Catching up or Lagging Behind? The Long-Term Business and Innovation Potential of Subsidized Start-Ups out of Unemployment," CEPA Discussion Papers 12, Center for Economic Policy Analysis.
  • Handle: RePEc:pot:cepadp:12
    DOI: 10.25932/publishup-43701
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    More about this item

    Keywords

    Entrepreneurship; Start-up Subsidies; Business Growth; Innovation; Job Creation;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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