Unemployment benefit duration and startup success

Camarero Garcia, Sebastian ; Murmann, Martin

PDF
dp20033.pdf - Published
Download (801kB)

URL:	https://madoc.bib.uni-mannheim.de/57092
URN:	urn:nbn:de:bsz:180-madoc-570926
Document Type:	Working paper
Year of publication:	2020
The title of a journal, publication series:	ZEW Discussion Papers
Volume:	20-033
Place of publication:	Mannheim
Publication language:	English
Institution:	Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSE (Economics) Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series:	Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject:	330 Economics
Classification:	JEL: D22 , J21 , J23 , J44 , J62 , J64 , J65 , L11 , L25 , L26 , M13,
Keywords (English):	Entrepreneurship , unemployment insurance , fiscal externality
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.