Unemployment benefits, entrepreneurship policies, and new business creation

Irina Bilan () and Constantin-Marius Apostoaie ()
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Irina Bilan: Alexandru Ioan Cuza University of Iaşi
Constantin-Marius Apostoaie: Alexandru Ioan Cuza University of Iaşi

Small Business Economics, 2023, vol. 61, issue 4, No 3, 1436 pages

Abstract: Abstract Besides their common link with unemployment, unemployment benefits are also relevant to the decision to become an entrepreneur. We thoroughly explored this relationship for a panel of 23 EU countries over the period 2001–2019. Our results demonstrate that generous unemployment compensations hinder entrepreneurial initiative, and those opportunity entrepreneurs, who are more likely to create new jobs and innovation, are affected more. Contrary to common belief, we find an unequal pattern of effects, with higher benefits being more detrimental at the beginning of the unemployment spell. A favourable policy framework results in being relevant for entrepreneurial endeavours on its own; in addition, high-quality policies and programmes for entrepreneurs are found to temper the negative effects of large unemployment benefits on new business creation during long unemployment spells. Our results support the call for properly designed unemployment benefit systems (as both level and time pattern) that ensure an optimum balance between adequate income replacement and poverty prevention, on the one hand, and limited side effects on new venture creation, on the other hand.

Keywords: Unemployment benefit replacement rate; Nascent entrepreneurship; Opportunity and necessity entrepreneurship; Entrepreneurship programmes and support; European Union countries (search for similar items in EconPapers)
JEL-codes: H53 L26 M13 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11187-023-00735-9

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