Unemployment Benefit Duration and Startup Success

81 Pages Posted: 21 Jul 2020

See all articles by Sebastian Camarero Garcia

Sebastian Camarero Garcia

Deutsche Bundesbank; ZEW – Leibniz Centre for European Economic Research; University of Mannheim - Department of Economics; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Martin Murmann

Centre for European Economic Research (ZEW)

Date Written: 2020

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 re-employment 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.

Keywords: entrepreneurship, unemployment insurance, fiscal externality

JEL Classification: D22, J21, J23, J44, J62, J64, J65, L11, L25, L26, M13

Suggested Citation

Camarero Garcia, Sebastian and Murmann, Martin, Unemployment Benefit Duration and Startup Success (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-033, Available at SSRN: https://ssrn.com/abstract=3649948 or http://dx.doi.org/10.2139/ssrn.3649948

Sebastian Camarero Garcia (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

HOME PAGE: http://www.bundesbank.de/en

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de/MA713-1

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

HOME PAGE: http://gess.uni-mannheim.de/doctoral-programs/economics-cdse/alumni.html

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://cep.lse.ac.uk/_new/staff/person.asp?id=10513

Martin Murmann

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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