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Unemployment benefit duration and startup success

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  • Camarero Garcia, Sebastian
  • Murmann, Martin

Abstract

Business creation is economically important, and unemployment precedes the creation of a substantial share of new firms. Yet, most research has focused on analyzing the effects of unemployment insurance policies on re-employment outcomes, ignoring self-employment. In this paper, we analyze how the potential duration of unemployment benefits, a fundamental design choice of unemployment insurance systems, affects whether new firms are founded out of opportunity or necessity and their growth potential. To this end, we construct a comprehensive dataset on German firm founders that links administrative social insurance information with business survey data. Exploiting reform and age-related exogenous variation in the potential duration of unemployment benefits, we find that longer potential benefit duration implies longer actual unemployment and, as a consequence, more necessity entrepreneurship and worse startup outcomes in terms of sales and employment growth. We explain this overall effect of potential benefit duration through a mix of compositional and individual-level duration effects. Our findings underline that new firms started out of unemployment are a highly heterogeneous group and suggest that the (optimal) design of unemployment insurance systems has important externalities on whether innovation- and growth-oriented firms are started out of unemployment.

Suggested Citation

  • Camarero Garcia, Sebastian & Murmann, Martin, 2024. "Unemployment benefit duration and startup success," Discussion Papers 31/2024, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:301863
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    More about this item

    Keywords

    entrepreneurship; unemployment insurance; self-employment; opportunity entrepreneurship; fiscal externality;
    All these keywords.

    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
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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