Entrepreneurship and Market Size: The Case of Young College Graduates in Italy

39 Pages Posted: 24 Mar 2011

See all articles by Sabrina Lucia Di Addario

Sabrina Lucia Di Addario

Bank of Italy

Daniela Vuri

University of Rome Tor Vergata; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Date Written: September 15, 2010

Abstract

We analyse empirically the effects of urbanization on Italian college graduates' work possibilities as entrepreneurs three years after graduation. We find that doubling the population density of the province of work reduces the chances of being an entrepreneur by 2-3 percentage points. This result holds after controlling for regional fixed effects and is robust to instrumenting urbanization. Provincial competition, urban amenities and disamenities, cost of labour, earning differentials between employees and self-employed workers, unemployment rates and value added per capita account for more than half of the negative urbanization penalty. Our result cannot be explained by the presence of negative differentials in returns to entrepreneurship between the most and the least densely populated areas either. In fact, as long as they succeed in entering the most densely populated markets, young entrepreneurs are able to reap the benefits of urbanization externalities: doubling the population density of the province of work increases entrepreneurs' net monthly earnings by 2-3 per cent.

Keywords: Labour market transitions, urbanization

JEL Classification: R12, J24, J21

Suggested Citation

Di Addario, Sabrina Lucia and Vuri, Daniela, Entrepreneurship and Market Size: The Case of Young College Graduates in Italy (September 15, 2010). Bank of Italy Temi di Discussione (Working Paper) No. 775, Available at SSRN: https://ssrn.com/abstract=1788146 or http://dx.doi.org/10.2139/ssrn.1788146

Sabrina Lucia Di Addario (Contact Author)

Bank of Italy ( email )

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Daniela Vuri

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
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IZA Institute of Labor Economics

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Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

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