Reducing Start-up Costs for New Firms: The Double Dividend on the Labor Market

Starting a firm with expansive potential is an option for educated and high-skilled workers. If there are labor market frictions, this additional option can be seen as reducing the chances of ending up in a low-wage job and hence as increasing the incentives for education. In a matching model, we sh...

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Bibliographic Details
Published in:The Scandinavian journal of economics 2006-07, Vol.108 (2), p.317-337
Main Authors: Dulleck, Uwe, Frijters, Paul, Winter-Ebmer, Rudolf
Format: Article
Language:English
Subjects:
bureaucratic hurdles
Business economics
Cost efficiency
D73
Economic costs
Economic models
education
Employment creation
J24
J68
Job search
Labor market
Labor markets
Labour economics
Labour force
Labour market
Legal status
Matching
Model testing
School enrollment
Self employment
Skilled workers
Small and medium sized enterprises
Start up firms
start-up costs
Startup costs
Unemployment
Venture capital
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Summary:Starting a firm with expansive potential is an option for educated and high-skilled workers. If there are labor market frictions, this additional option can be seen as reducing the chances of ending up in a low-wage job and hence as increasing the incentives for education. In a matching model, we show that reducing the start-up costs for new firms results in higher take-up rates of education. It also gives rise-through a thick-market externality-to higher rates of job creation for high-skilled labor as well as average match productivity. We provide empirical evidence to support our argument.
ISSN:0347-0520
1467-9442
1467-9442
DOI:10.1111/j.1467-9442.2006.00455.x