Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Business Cycles: Policy and Entrepreneurship C08-V3
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 self-employment by 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. Exit from self-employment decreases slightly, which suggests that the additional firms are fairly stable in the first years after startup. 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.