Reducing Start-up costs for New Firms: The Double Dividend on the Labor Market
Starting a firm with expansive potential is an option for educated and high-skilled workers. If there are labor market frictions, this additional option can be seen as reducing the chances of ending up in a low-wage job and hence as increasing the incentives for education. In a matching model, we show that reducing the start-up costs for new firms results in higher take-up rates of education. It also gives rise through a thick-market externality to higher rates of job creation for high-skilled labor as well as average match productivity. We provide empirical evidence to support our argument.
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