Entrepreneurship and Market Size: The Case of Young College Graduates in Italy
Sabrina Lucia Di Addario
Bank of Italy
University of Rome Tor Vergata; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
IZA Discussion Paper No. 5098
We analyze empirically the effects of urban agglomeration on Italian college graduatesﾒ work possibilities as entrepreneurs three years after graduation. We find that each 100,000 inhabitant-increase in the size of the individualﾒs province of work reduces the chances of being an entrepreneur by 0.2-0.3 percent. This result holds after controlling for regional fixed effects and is robust to instrumenting urbanization. Provinceﾒs competition, urban amenities and dis-amenities, cost of labor, earning differentials between employees and self-employed workers, unemployment rates and value added per capita account for 40 percent of the negative urbanization penalty. Our result cannot be explained by the presence of negative large-city differentials in returns to education either. In fact, as long as they succeed in entering the largest markets, young entrepreneurs are able to reap-off the benefits of urbanization externalities: every 100,000-inhabitant increase in the province's population raises entrepreneurs' net monthly income by 0.2-0.3 percent.
Number of Pages in PDF File: 21
Keywords: labor market transitions, urbanization
JEL Classification: R12, J24, J21working papers series
Date posted: August 2, 2010
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