Catching up or Lagging Behind? The Long-Term Business and Innovation Potential of Subsidized Start-Ups out of Unemployment

Marco Caliendo, Steffen Künn () and Martin Weissenberger ()
Additional contact information
Martin Weissenberger: University of Potsdam

No 12690, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: From an active labor market policy perspective, start-up subsidies for unemployed individuals are very effective in improving long-term labor market outcomes for participants. From a business perspective, however, the assessment of these public programs is less clear since they might attract individuals with low entrepreneurial abilities and produce businesses with low survival rates and little contribution to job creation, economic growth, and innovation. In this paper, we use a rich data set to compare participants of a German start-up subsidy program for unemployed individuals to a group of regular founders who started from non-unemployment and did not receive the subsidy. The data allows us to analyze their business performance up until 40 months after business formation. We find that formerly subsidized founders lag behind not only in survival and job creation, but especially also in innovation activities. The gaps in these business outcomes are relatively constant or even widening over time. Hence, we do not see any indication of catching up in the longer run. While the gap in survival can be entirely explained by initial differences in observable start-up characteristics, the gap in business development remains and seems to be the result of restricted access to capital as well as differential business strategies and dynamics. Considering these conflicting results for the assessment of the subsidy program from an ALMP and business perspective, policy makers need to carefully weigh the costs and benefits of such a strategy to find the right policy mix.

Keywords: entrepreneurship; start-up subsidies; business growth; innovation; job creation (search for similar items in EconPapers)
JEL-codes: J68 L26 M13 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-10
New Economics Papers: this item is included in nep-ent, nep-eur, nep-ino, nep-lab, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Research Policy, 2020, 49 (10), 1-14

Downloads: (external link)
https://docs.iza.org/dp12690.pdf (application/pdf)

Related works:
Journal Article: Catching up or lagging behind? The long-term business and innovation potential of subsidized start-ups out of unemployment (2020)
Working Paper: Catching up or Lagging Behind? The Long-Term Business and Innovation Potential of Subsidized Start-Ups out of Unemployment (2019)
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:iza:izadps:dp12690

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().