Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/301863 
Year of Publication: 
2024
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 31/2024
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
Business creation is economically important, and unemployment precedes the creation of a substantial share of new firms. Yet, most research has focused on analyzing the effects of unemployment insurance policies on re-employment outcomes, ignoring self-employment. In this paper, we analyze how the potential duration of unemployment benefits, a fundamental design choice of unemployment insurance systems, affects whether new firms are founded out of opportunity or necessity and their growth potential. To this end, we construct a comprehensive dataset on German firm founders that links administrative social insurance information with business survey data. Exploiting reform and age-related exogenous variation in the potential duration of unemployment benefits, we find that longer potential benefit duration implies longer actual unemployment and, as a consequence, more necessity entrepreneurship and worse startup outcomes in terms of sales and employment growth. We explain this overall effect of potential benefit duration through a mix of compositional and individual-level duration effects. Our findings underline that new firms started out of unemployment are a highly heterogeneous group and suggest that the (optimal) design of unemployment insurance systems has important externalities on whether innovation- and growth-oriented firms are started out of unemployment.
Subjects: 
entrepreneurship
unemployment insurance
self-employment
opportunity entrepreneurship
fiscal externality
JEL: 
L26
M13
L11
L25
D22
J21
J23
J44
J62
J64
J65
ISBN: 
978-3-98848-006-4
Document Type: 
Working Paper

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