Unemployment benefit duration and startup success

Sebastian Camarero Garcia and Martin Murmann

No 20-033, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Despite the importance of business creation for the economy and a relevant share of new firms being started out of unemployment, most research has focused on analyzing the effect of unemployment insurance (UI) policies on reemployment outcomes that ignore self-employment. In this paper, we assess how UI benefit duration affects the motivation for creating a startup while unemployed and the subsequent firms' success. To do so, we create a comprehensive dataset on founders in Germany that links administrative social insurance with survey data. Exploiting reform- and age-based exogenous variations in potential benefit duration (PBD) within the German UI system, we find that longer PBD leads to longer actual unemployment duration for those becoming self-employed. Furthermore, the UI duration elasticity for these individuals is higher than common estimates for those individuals becoming re-employed. With increasing unemployment benefit duration, the founders' outcomes in terms of self-assessed motivation, sales, and employment growth lessen. This overall causal effect of PBD can be rationalized with a mix of composition and individual-level duration effects. Therefore, our findings suggest that it is important to consider the fiscal externality of UI on startup success when it comes to the (optimal) design of UI systems.

Keywords: entrepreneurship; unemployment insurance; fiscal externality (search for similar items in EconPapers)
JEL-codes: D22 J21 J23 J44 J62 J64 J65 L11 L25 L26 M13 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ent, nep-eur, nep-ias, nep-lma and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Unemployment benefit duration and startup success (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:20033

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