Do You Dare? The Effect of Economic Conditions on Entrepreneurship among College Graduates

Hendrik Beiler

No 88, Working Paper Series in Economics from University of Cologne, Department of Economics

Abstract: I estimate the effect of business cycle conditions on the decision to enter entrepreneurship after college graduation. I proxy for economic conditions at the field of study level, constructed from industry growth rates which I weight to fields of study using employees' industry - college major distribution. This enables to control for unobserved differences between graduation cohorts such as technological change or shifts in cohort composition. Using administrative survey data for Germany, I find that a one percentage point increase in employment growth in the year of graduation raises entry into entrepreneurship by about 30% in the first year after graduation. The effect halves in the second year and is close to zero in the third and fourth year after graduation. Interestingly, exit from entrepreneurship decreases slightly, which suggests that the additional entrepreneurs are fairly stable in the first years after entry. Taken together, my results imply that "lucky" graduation cohorts are persistently more likely to enter and persist in entrepreneurship than "recessionary" cohorts, at least during the first four years after graduation that I examine. My results have relevant implications for policy measures such as startup subsidies, since entrepreneurship is commonly acknowledged as a central source of job creation and economic dynamism.

Keywords: Entrepreneurship; Business Cycles; Higher Education; Occupational Choice; Firm Entry (search for similar items in EconPapers)
JEL-codes: E32 I23 J23 J24 L26 M13 (search for similar items in EconPapers)
Date: 2016-11-01
New Economics Papers: this item is included in nep-ent, nep-eur, nep-ino, nep-lma and nep-mac
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