Self-employment promotion as active labor market policy: Design and trade-offs in rigid labor markets

Joaquin Garcia-Cabo, Rocio Madera and Zoe Xie

Economics Letters, 2025, vol. 257, issue C

Abstract: This paper analyzes self-employment subsidies for the unemployed, a common policy in Europe. We develop a search model with self-employment to study how startup funding affects employment and welfare via individual choices and equilibrium forces. The model identifies three channels: (1) direct unemployment reduction, (2) crowding-out effect on paid-employment, and (3) a budget effect, whereby startup subsidies can generate fiscal savings. (1) and (3) are increasing with labor market rigidity. A simple calibration quantifies these channels and compares welfare effects across labor market structures.

Keywords: Active labor market policy; Unemployment insurance; Self-employment; Rigid labor markets (search for similar items in EconPapers)
JEL-codes: E24 J64 J65 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176525004938
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:257:y:2025:i:c:s0165176525004938

DOI: 10.1016/j.econlet.2025.112656

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().