The impact of labor market policies on entrepreneurial activities

EUR ROPEAN PO OL LIC CY YBR RIEEF THEE IMPACT OF LABOUR MAR RKET POL LICIES ON N ENTR REPRENEU URIAL ACT TIVITIES Jan Zouhar, Ma artin Lukes s, Felix Hörrisch, Jale Tosun and d Jenn nifer Shore Policcy Brief II off the CUPES SSE-Projecct www w.cupesse.e eu July 2015 5 I. INTROD DUCTION As the leve els of unem mployment grew g over th he last five years, polic cy makers ffocused the eir attention n on entreprreneurship as a promise to redu uce unemployment. However, poolicies focus sed on the e transition ffrom unemp ployment to self-employyment have e not always s fulfilled exxpectations, with some e the best solution to studies evven suggessting that more self-e employmen nt is not necessarily n o unemploym ment (e.g., Shane S 2009 9). uestions re egarding the factors influencin ng nascentt This policcy brief asspires to explore qu entreprene eurship of the unemplo oyed. It furrthermore aims a specifically at bettter understtanding the e role of labo our market policies an nd, on this b basis, to pre esent policy y recomme ndations. We W draw on n individual-llevel data on o unemplo oyed individ duals gatherred in the frame of Gloobal Entrep preneurship p Monitor in 33 countrie es in the years 2006 to 2012 an nd combine them with country-lev vel data on n unemploym ment rate, entrepreneu e urship rate a and labour market m polic cy expendituures.1 Using multtinomial logistic regressions and ffixed-effects s panel regrressions, wee confirm th he negative e impact of u unemploym ment benefits on solo e entrepreneu urship. On the other haand, we find d a positive e influence o of active la abour mark ket policiess that aim to create jobs on enntrepreneurrial activity.. Surprisinglly, high agg gregate une employmen t rates are found to encourage eentrepreneu urial activityy of the une employed. Nascent N en ntrepreneursship of une employed in ndividuals w was lower for f women,, youths and d people witth lower edu ucation. Pa articularly the young unemployed i n the age group g 18-24 4 have comp parably lowe er entrepreneurial activvity, with 3.07% of you ung unemplooyed being involved in n 1 This policyy brief is based on the stu udy by Zouh ar and Lukes s (2015). - EU UROPEA ANPOL LICYBRIIEF - Page|1 early-stage e entrepren neurial activities. By contrast, the entrepreneurial acctivity of unemployed u d people age 25 to 34 4 is the hig ghest, with 5.27% be eing involve ed in early--stage entrepreneuriall activities. T These figure es indicate that entrep reneurship promotion may have pparticular re elevance forr unemploye ed individua als in this age a group. To that efffect, this policy p brief outlines us seful policyy implication ns for the tra ansition from m unemployyment to se elf-employm ment, and inn particular for f 25 to 34 4 year olds. As presentted in the firrst CUPESS SE policy b rief (Hörisch et al. 2014, cf. also T Tosun 2015 5, Arndt and d Hörisch 20 015), active e labour ma arket policie es (ALMPs) fostering entrepreneu e urial activitie es currentlyy play only a minor role in overall labour ma arket policy y making wiithin the Euuropean countries. On n average, A ALMPs account for on nly 0.03% o of GDP, wh hile the ave erage overaall spending g on labourr market po olicies comp prises 1.91% of GDP P in the Eu uropean countries. Acccordingly, and as we e document below, inccreasing the e budget ffor active labour mark ket policy making and fostering g entreprene eurship ma ay prove to be one of many promising paths forr tackling high youth h unemploym ment rates. This policyy brief is structured as follows: In ssection two o, we provide an overviiew of the liiterature on n self-employment and entrepreneurship as a way out of unemploym ment. In secction three, we discusss recent devvelopments and finding gs on the e effects of ac ctive and passive p laboour market policies on n entreprene eurial activities. Sectio on four doccuments the e results off our analyyses on the e impact off different la abour market policies on entrepre eneurship. Lastly, in section s fivee we offer conclusions c s and presen nt policy re ecommenda ation based on our findings. II. STATE OF THE AR RT: SELF-E EMPLOYMEN NT AND EN NTREPRENE EURSHIP AS A WAY Y OUT OF U NEMPLOY YMENT? Most scholars and po olicy makers s agree tha at entrepren neurship is important aand has ma any positive e effects. On n the aggreg gate global level, it pre edicts future e GDP and future unem mployment (Koellingerr and Thurikk 2012). It adds to prroductivity g growth, cre eates jobs, increases cconsumer choice and d competitive e pressure, helps to op ptimize pricces, and has many other benefits (Berglann et al. 2011,, Lukes and Zouhar 2013). Unemp ployment, h owever, has many neg gative effectts for econo omies (e.g.,, lower income tax revenues and the many ccosts relate ed to unemployment bbenefits); so ociety (e.g.,, related to higher leve els of substa ance use o r crime); as s well as individuals (ee.g., lower self-esteem s m and well-be eing). More eover, during the recen nt economic c crisis in Eu urope, unem mployment levels grew w substantiallly (Tosun et al. 2014, Höriscch and We eishaupt 20 012), with young people being g particularlyy affected by these dev velopments (Berlingierii et al. 2014 4, O’Reilly eet al. 2015). Self-emplo oyment has been identtified by the e European n Commission in its Aggenda 2020 0 as one off the ways to o reduce th he overall level of unem mployment in general as a well as yo youth unemp ployment in n particular. Policy makkers in my countries h have thus aimed a to im mplement ppolicies sup pporting the e transition ffrom unemp ployment intto entrepren neurship. There are tw wo contradicctory forces influencing g the engage ement of unemployed in nascentt entrepreneurship durring econom mic crises. The first iss positive an nd is related d to so-calle ed necessityy entrepreneurship. Un nemployed people try to t start new w businessess in order to o achieve better b living g standards or as a las st resort folllowing failure to find a job as an e employee. As A they gen nerally have e lower oppo ortunity cos sts (since thhey do not have h a job),, the likeliho ood of engagement in entrepreneu e urship incre ease. The otther effect i s negative and relatess to objectivvely worsened market conditions related to the econom mic crisis. H Here we wo ould expectt lower leve els of entrepreneurship p due to th he overall poor p econo omic climatee which wo ould renderr starting a n new businesss a particu ularly precarrious activitty. Who are th he entrepreneurs? In addition n to individ dual level factors su uch age, gender or education e level, there e are also o institutiona al factors inffluencing th he unemplo oyed person ns’ individua al decisionss to engage e in nascentt - EU UROPEA ANPOL LICYBRIIEF - Page|2 entreprene eurship, ma ainly related d to existing g labour market m policies (e.g., K Koellinger and a Minnitii 2009) Und derstanding g these fac ctors can h help policy makers to decide if and how to t promote e entreprene eurship in th heir battles against a une employmentt (Thurik et al. 2008). As Román n et al. (201 13) emphas size, it is ne ecessary to distinguish h between nnascent enttrepreneurss who start b businesses as a last re esort option n (entrepren neurship out of necesssity: not inno ovative, nott employing others) and a entreprreneurs wiith more ambitious a goals g who may furth her reduce e unemploym ment by em mploying otthers. In exxamining both b the ind dividual as well as co ountry-levell factors tha at influence the decisio ons of the u unemployed d to engage e in entreprreneurial ac ctivities, we e also differe entiate betw ween nasce ent entrepre eneurs who plan to start business es as the sole s ownerss and those who plan to o start busin nesses that will also em mploy others. One disadvantage of many prev vious studie es (e.g., Ko oellinger and Minniti 20009) is thatt they workk only with ccountry data a and thus cannot map p the factorrs that influe ence the likkelihood of a transition n from unemployment to self-e employmen t at the micro-leve el. Consideering the significantt heterogene eity across individuals,, for examp le in terms of education, ignoring the micro-le evel resultss gives an in ncomplete picture p of en ntrepreneurrial activities s. We overc come this shhortcoming by utilizing g individual llevel datase ets and com mbining the em with cou untry level variables. M Moreover, by b focusing g on nascen nt entrepren neurship of the unemplloyed we ca apture those efforts att the very beginning off the processs of becoming self-employed. The role off the economic climate e Somewhatt surprising gly, the relationship b between en ntrepreneurrship and uunemploym ment is nott straightforw ward, but ra ather dynam mic and non nlinear (Farria et al. 2010). The quuestions reg garding the e extent to w which entrep preneurship p can reduce e unemploy yment as we ell as whichh policy mea asures help p in this taskk remains op pen. There is empirical support fo or bi-directtional caus sation betw ween channges in the level off entreprene eurship and d the level of unempl oyment (Pa arker et al.. 2012). Thhe ‘entrepre eneurial’ orr ‘Schumpetter’ effect of o entrepren neurship red duces subs sequent une employmentt in the long-term due e to the gene eration of jo obs by new firms (Reyn nolds et al. 1994, Baptiista and Thuurik 2007, Thurik T et al.. 2008). Enttrepreneursship has be een shown to lower un nemployment with a tiime lag of up to eightt years, the time neede ed for new firms f to grow w and create a signific cant numbe r of jobs (A Audretsch ett al. 2001, T Thurik et al. 2008). This finding, h however, do oes not app ply to all coountries. Fo or example,, Thurik (200 03) does no ot find supp port for the model in th he UK, nor do d Baptistaa and Thurik k (2007) forr Portugal. T Their explan nations poin nts to in the e prominent position of large firm ms in the UK K case, and d to the hig gher numbe er of marg ginal entrep preneurs in n Portugal. In such a specific situation s off excessive self-employyment, self--employed individuals operate ine efficiently, ii.e., below the optimall and their ressources ma ay have bee en better utilized had th hey workedd for a large er business.. firm size, a Excessive self-employyment can be a chara acteristic of poor econo omies of sccale in prod duction and d R&D rathe er than of vivvid entrepre eneurial acttivity (Carre ee et al. 200 07). Carree et al. (2007 7) therefore e introduced a model in n which the ey assume an ‘optimal’ level of se elf-employm ment for each country.. Generally, the ‘entrep preneurial’ effect is sttronger for more deve eloped cou ntries (van Stel et al.. 2005, Grilo o and Irigoyyen 2006). On the oth her hand, there has also a been d documented d evidence of a ‘refug ee’ effect (also ( called d ‘supply pussh’ or ‘unem mployment push’ effectt); that is, high h unemployment rattes stimulating start-up p activity of tthe unemplloyed (Evan ns and Leig ghton 1990, Grilo and Irigoyen 20006), particu ularly in the e form of sub bsistence entrepreneu e rship (Thur ik et al. 200 08, Koellinger and Thu rik 2012). In n this case,, entreprene eurship is an n alternative e for people e who have lost their jo obs. At the nnational lev vel, a rise in n unemploym ment leads to subsequent growth in entrepre eneurship ra ates (Koellinnger and Th hurik 2012).. Subsistencce entrepreneurship, however, pro oduces firm ms with very y low growthh rates and thus has a Thurik et all. (2008) ass very limited d impact on n subseque ent employm ment (Baptis sta and Thu urik 2007). T well as Grrilo and Irig goyen (2006 6) find that the ‘entrep preneurial’ effects e are considerab bly strongerr than the ‘re efugee’ effe ects. - EU UROPEA ANPOL LICYBRIIEF - Page|3 There is allso a negattive effect of o recession n related to high unemployment thhat goes ha and in hand d with lower purchasing g power an nd lower de emand for new n produc cts and serv rvices (e.g., Audretsch h and Fritsch h 1994), ressulting in a decrease o of potential business in ncome and increased failure f riskss (e.g., Parkker 2009). Furthermore F , in bad eco onomic time es it is more e difficult too secure the e necessaryy financial re esources ne eeded to sttart a new b business (P Parker 2009 9). Overall, however, the t positive e influences of slack la abour markets outweig gh the nega ative influences and tthus tend to o lead to a higher incid dence of sta art-ups (Fairlie 2013). Finally, the ere is a discussion in n the entre epreneurship literature on pro-cyyclical and/o or counter-cyclical relationships between se elf-employm ment and ec conomic con nditions (Coongregado et al. 2009,, Román ett al. 2013 3). Pro-cyclical effectt occurs when w more e high-skilleed opportu unity-driven n individualss enter into entreprene eurship due e to percepttions of goo od busines s opportunities, which h naturally im mproves witth economic conditionss (e.g., Carrrasco 1999 9). In such ssituations, high h markett demand fo or products and service es pulls indiividuals tow wards self-employmentt. On the oth her hand, a counter-cyyclical relatio onship is trriggered by the ‘refuge ee’ effect – in times of recession opportunityy costs for self-employyment decrrease (Eva ans and Le eighton 1990), particuularly for less skilled d necessity-d driven unem mployed individuals (T Thurik et al. 2008), th hereby leadding to an increase in n start-up ra ates. This re elationship has also b been confirm med at the aggregatee level (Koe ellinger and d Thurik 2012). Becoming an entrepre eneur The theoryy of occupational choic ce that deal s with indiv vidual decisions regardding the enttry into self-employment dates ba ack to Knigh ht (1921), w who described individua als as makiing decision ns between n unemploym ment, self-e employmentt and emplo oyment. The e actual dec cision is inflluenced by the relative e prices of th hese option ns. Unemployed individ duals with a low proba ability of goood wage employment e t may turn to o self-employment as the best altternative. Labour mark ket opportunnities, which are lowerr during a rrecession period p with higher une employmen nt rates, de ecrease thee opportunity costs off starting a ffirm (Evanss and Jovanovic 1989 , Thurik et al. 2008). Despite be ing mitigate ed by more e uncertain e economic prospects, p unemploym u ment is positively relate ed to self-eemploymentt (Grilo and d Irigoyen 2 2006, Thurik et al. 20 008). Acco ording to Berglann B ett al. (2011 ), whereas s individuall unemplooyment unemploym ment enccourages entreprene eurship, aggregate discourages d s entreprene eurship. The e theory of occupation nal choice views v individ duals as uttility maximiizers taking g an occupa ational choicce decision to become e employees s or self-em mployed on the basis of o the utilityy associated d with the re eturns coming out from m the two ty ypes of actiivity (Evanss and Jovan novic 1989,, Blanchflow wer and Oswald 1998, Douglas a and Shephe erd 2002, Grilo G and Irrigoyen 200 06, Baptista a and Thurikk 2007). The unemployed tend d to have lo ower knowle edge, skills and experiience needeed to start a new firm.. Even in no ormal econo omic condittions most start-ups engage e in marginal, m im mitative entrrepreneuriall activities ((Koellinger and Thurik k 2012) and d tend not to employ other indivviduals (Ro omán et al.. 2013). When unemplo oyment rate es are high more peop ple start-up businessess because they t cannott find a job therefore and a in gene eral increasse the sharre of less ambitious a foorms of ma arginal self-employment, e.g., dependent or last-resort self-employment (Eva ans and Leiighton 1990 0, Thurik ett al. 2008, R Román et al. a 2013). Such S unemp ployed indiv viduals who o plan to sttart a busin ness will be e more likelyy influenced d by nationa al labour ma arket policie es such as start-up suubsidies tha an by globall technologiccal trends.. The opp posite can be expec cted for highly skilleed opportunity driven n entreprene eurs (Koelliinger and Thurik 201 12, Román et al. 201 13) who sttart busine esses more e frequently when globa al business opportunitie es arise. Román et al. (2013) propose that at least three group ps of unemployed enteering self-e employmentt should be distinguish hed: opporttunity drive n entrepren neurs; nece essity driveen entrepre eneurs; and d dependentt entreprene eurs who work w for one e employer out of wage employm ment in orde er to reduce e labour cossts of the employer. e These T grou ps of self-e employed differ d largelyy in their motivations, m , skills and innovativen ness (Meager 1992, Sa antarelli and Vivarelli 2007, Bergglann et al. 2011), and d we thus ca an expect th hat the determinants off self-emplo oyment will also a differ. - EU UROPEA ANPOL LICYBRIIEF - Page|4 To conclud de in line with w Román n et al. (201 13: 154), th he theory of o occupatioonal choice “considerss individualss as rationa al beings who w seek tto maximize e their eco onomic andd non-pecuniary utilityy associated d with occu upational ch hoice”. The e individuall makes a choice forr employme ent or self-employment if the exp pected payo off of these e activities exceeds e the e value of reemaining un nemployed,, i.e., taking into consid deration public unemp loyment ins surance ben nefits plus tthe pecunia ary value off leisure and d home prod duction activities and p potential inc come from other o activitiies. III. THE EFFECT F OF L ABOUR MARKET A POLICIES ON E NTREPRENEURIAL ACTIVIITIES: RECEENT DEVELO OPMENTS AND FINDIN NGS The financcial and eco onomic cris sis that hit E Europe in 2008 2 led to o growing uunemployme ent rates in n most coun ntries (Heye es 2013, Be erlingieri et al. 2014, Tosun T et al. 2014). Soome countrries, mainlyy those in So outhern Europe, have faced extre emely high levels of bo oth unemplooyment in general g and d youth une employmentt in particu ular, forcing g policy-ma akers to en ngage in p olicy disma antling and d austerity m measures (see, e.g. Bianculli B an nd Jordana 2013, Jord dana 2013,, Ladi and Tsarouhass 2014). Me ember state es have been advised d to increas se labour market m flexxibility while e improving g employabillity, and thus ensuring g security, through ac ctive labour market poolicies (O’R Reilly et al.. e strategie 2015). The es of lifelon ng learning g have focu used on ad daptability, coping with change,, encouragin ng (self-)em mployment and making g transition ns to new jobs easier.. However, the actuall trend was towards lesss security rather than n in the dire ection of fle exicurity (Heeyes 2011, Tsarouhass and Ladi 2 2013). Thesse developm ments led tto noticeable public un nrest and a lowered trrust in both h domestic a and European political institutions (Tosun et al. a 2014). High H unempployment rattes coupled d with limited d economicc growth or even declin ne required d policy mak kers to placce a greater emphasiss on entrepreneurship and self-e employmentt as ways to reduce e unemployyment and jump-startt economic growth (e.g g., Baptista a and Thuri k 2007, OE ECD 2012). Entreprenneurship, moreover, m iss viewed as holding a promise p of higher prod ductivity and innovations and cann increase competition c n as well as consumer choice c (e.g.., Reynolds 2007). In 2013 the e European n Commission adopted d a Communication – the Entrepreeneurship 2020 2 Action n Plan (Euro opean comm mission 201 13) – that a aims at ‘reigniting the entrepreneeurial spirit in Europe’.. The action n plan restss on three pillars p and e explicitly aim ms at socie etal groups that traditio onally have e tended to stay out off entrepreneurship: wo omen, seniors, migran nts, the uneemployed and a – mostt importantlyy – young people. The European n Commiss sion regards s young peeople as a particularlyy important rresource that cannot be b allowed tto go untap pped. The first pillar reffers to entrepreneuriall education and training to suppo ort growth a and busines ss creation, the seconnd to the crreation of a favourable e environm ment for entrepreneu rship, and the third d pillar adddresses establishing e g entreprene eurs as role e models and how to reach out to the abov ve-mentioneed groups. Somewhatt remarkablyy, the action n plan does s not empha asize the role of labour market pollicies for strrengthening g entreprene eurship. On ne reason for this omi ssion may be that the ese policiess often did not deliverr expected rresults. For examp ple, active labour market policy programmes in Switz zerland (Laalive et al. 2002) and d Scotland (A Adams and d Thomas 2007) did no ot reduce th he duration of unemplooyment; a siimilar resultt was found d for the efffects of tra aining prog grammes in n France (C Créponet all. 2008). The T authorss recommen nded that policies p focu us more on n creating demand d forr labour, i.ee., supporting existing g employers. On the other hand Pe erry and Maloney (2007 7) found tha at work expe erience proggrammes are a effective e in the short-term. The T key finding of S Sianesi’s (2008) Swe edish analyyses was that when n programme es were mo ore like a regular job they tended d to be more effectivee for their participants. p . Lechner an nd Wunsch h (2009), us sing Germa n data, found a clear positive relaationship between the e effectivene ess of the training t programmes a and the une employment rate of prrogramme participants p s over ten-yyear period.. Similarly, Strandh a and Nordlun nd (2008) confirmed c tthe positive e long-term m - EU UROPEA ANPOL LICYBRIIEF - Page|5 effect of ttraining pro ogrammes; Jespersen et al. (20 008) found a positive relationshiip between n employment and earn ning effects of job trainiing. t, active laabour mark Concerning g the transsitions from m unemployyment to employmen e ket policiess delivered m mixed resu ults. Berglan nn et al. (2 2011) found d that participation in active labour markett programme es correlates negative ely with en ntrepreneurrship, perha aps due too the desig gn of these e programme es to motiva ate job search rather tthan job cre eation. How wever, for thhe ones opting to enterr into entrep preneurship p, regardles ss of the su uccess of the t busines ss, self-empployment served as a stepping sttone back to o regular em mployment.. ubsidies for the unem mployed havve increasingly been used as a part of ac ctive labourr Start-up su market po olicies beca ause lackin ng financial resources s can repre esent a baarrier to en ntering into o entreprene eurship. A case c in poin nt is the Finn nish start-up grant ‘sta arttiraha’, whhich is also accessible e for unemployed people. By 2014 4 some 490 00 beneficia aries had re eceived the grant, whic ch amountss to EUR 32 2.66 per dayy during the e first 6–18 months. Th here is also the possibbility of add--ons of lesss than or eq qual to 60% % of the basic b grantt. While the e grant duration or vvalue is ge enerally nott dependentt on the tarrget group, there are longer gran nt periods for young ppeople and d women in n some case es (Europea an Commiss sion 2014: 1 18). ertheless lea ad to distorttion of indiv viduals’ occuupational ch hoices, i.e.,, This financcial stimuluss may neve even indivviduals wh ho lack th he skills a and capab bilities for entrepreneeurship may pursue e entreprene eurship, as this option constitutess a lower risk and higher potentiaal profit. Ro omán et al.. (2013) exp pect the positive effectt of these i ncentives to t be strong ger for the self-employ yed withoutt employeess, whereass Carrasco (1999) pe erceives liq quidity con nstraints ass more important forr entreprene eurs with em mployees. and Waden Again, the effects of start-up subsidies are e not straigh htforward. Andersson A nsjö (2007)) suggest su uch measurres should be b impleme nted with great care, as a the econoomic outcom mes of self-employment are often n inadequate e for many people who o were prev viously unem mployed. and Künn (2011), on the other hand, ana alysed the effects of a newly im mplemented d Caliendo a German syystem of sta art-up subs sidies and fo ound that over o 80% off participantts were inte egrated into o the labour market and d had good incomes fivve years affter starting up a busineess. Survival rates 2.5 5 years afte er the found ding of the e business were also o quite high h (Caliendoo and Kritikos 2010).. Similarly, C Chandler (2 2012) found a highly si gnificant po ositive impa act of the Caanada Sma all Businesss Financing Program on n employment, salary and revenu ues. It is ho owever impoortant to ke eep in mind d that these results com me from sing gle country studies and, as such, should nott be taken as a definitive e proof abou ut the effica acy of these e programm mes, nor should they be b automati cally be tra ansferred to o other coun ntries with different eco onomic circu umstances and a institutions. ment beneffits clearly play a ne egative role in the efffort to increease self-e employmentt Unemploym among the e unemployed. It has been b found that high unemploym u ent benefitss are directtly linked to o the duratio on of unemp ployment (e.g., Tatsiram mos 2009), this longerr period of uunemployment, in turn,, can discourage self--employmen nt (e.g., R Robson 201 10). In re elation to sself-employment, both h Koellinger and Minniiti (2009) and a Carrassco (1999) found thatt unemployyment bene efits lowerss entreprene eurial activity of the unemployed u d. Where unemployme ent benefitss are more e generous,, necessity-b based entrepreneursh hip in particcular is often rendere ed unnecesssary by be enefits thatt directly add dress this necessity n (B Braunerhjelm m and Henrrekson 2013 3). - EU UROPEA ANPOL LICYBRIIEF - Page|6 IV. MAIN RESULTS: T HE IMPACT T OF DIFFE ERENT LABO OUR MARK KET POLICIEES ON ENT TREPRENEUR RSHIP To test th he effects of o labour market m policcies on entrepreneurs ship, it is nnecessary to make a distinction between th he effects of o active an nd passive measures. For the latttter, neitherr theoreticall nor empirical evidencce can be found f that supports th he idea tha at passive llabour mark ket policiess encourage e entrepreneurship. With W active m measures, contradicto ory argumennts exist: On O the one e hand, the increased flexibility f ma ay encourag ge entrepre eneurial end deavours; oon the otherr hand, it iss true that the policie es may be more effiicient in re elocating th he participaants back into wage e employment (rather th han self-em mployment). Moreover, empirical evidence e onn the effectts is mixed,, both in term ms of reduccing unemployment in g general and d in boosting self-emplooyment in particular. p In this pollicy brief we w refer to a study co ombining tw wo types of data: ind ividual-leve el data and d country-levvel data. Th he former were w obtain ned from the e global GE EM individuual datasets s; the latterr were prima arily extractted from publicly accesssible datab bases, namely those aadministered d by OECD D and Eurosstat (2006).. The total sample siize, aggreg gated acros ss all yearss and countries, wass 36,030. Brroadly speaking, we inc cluded avai lable data on o all OECD D and EU co countries in years 2006 6 to 2012.In ndividual-levvel data we ere taken ffrom the 2014 2 releas se of the G GEM globa al individuall dataset, co ontaining all available years y up to o 2012. For each counttry and yea r, GEM datta contain a random sa ample of ad dults of age between 18 and 64 4 years.2 In n Model 1, we used multinomiall logistic reg gression to o explain a responden nt’s probability distribu ution over eentrepreneurial statess using both the countryy- and indiv vidual-level vvariables and a full sett of year an d country dummies. d In n ata up to the Model 2, w we aggrega ated individ dual-level da t country-year level.. For the in ndependentt variables, tthis meant taking t the mean m of the e values in each e country and year.. The following figures present the e results of tthe analysis s, plotting th he margina l effects3 off active and d passive lab bour market policies on n the entrep preneurial activities a of the t unemplooyed. Figure 1: T The effect of o active an nd passive labour marrket policies on entreprreneurship rates r of the e unemployed d. Based on multinomial logistic regre essions; indiv vidual data, N = 36,030. 2 For more d detailed inforrmation on th he data, metthods and res sults see Zou uhar and Lukkes (2015). 3 A margin nal effect esstimates the e extent to which the dependent variable (heere, the pro obabilities off entrepreneu urial activity for the une employed) iss expected to increase or decreasse when an explanatoryy variable (he ere, active orr passive labo our market p policies) chan nges by one unit. - EU UROPEA ANPOL LICYBRIIEF - Page|7 Key resultss from the multinomial m logit regresssion using individual-level data aare presente ed in Figure e 1. The figu ure shows predicted p pro obabilities o of entrepren neurial activ vity of the u nemployed for varying g levels of acctive and pa assive labour market p policies, with h the “1+ em mployees”, i.e., the one es planning g to create o other jobs, and “no em mployees”, i.e., solo entrepreneurrs with no pplans for jo ob creation,, categories treated as separated outcomes. This distinction is imp portant becaause the former group p has a high her likelihoo od of furthe er reducing unemploym ment by em mploying othhers. While e in the lastt group, the entreprene eur only cre eates a job for her- or himself, en ntrepreneurs rship with one or more e employeess also crea ates jobs fo or others a and is acco ordingly pa articularly h elpful to fig ght (youth)) unemploym ment. In the e active lab bour marke et policy panel (left), th he value off active lab bour markett policy span ns the range of the middle 50% o of its sample e levels (the e 25th perccentile in the e sample iss 0.012 and the 75th iss 0.053), wh hile all othe er variables are being fixed f at theeir sample means. m The e passive la abour markket policy panel p is crreated analogously. Shaded S areeas indicate e the 90% % confidence e interval ra anges. Statistically sign nificant effects are (i) the positive effect of ac ctive labourr market pollicies on “1+ employee es” entrepre eneurship and a (ii) the negative efffect of pas ssive labourr market policies on “no o employees” entrepre neurship. The key in ndependentt variables in our ana alysis are th he labour market m policcy expendittures (for a different ap pproach, se ee Jensen et e al. 2014). Here, the results r in bo oth models are remarkably similarr and, as su uch, the ressults seem fairly robusst. In both cases activ ve labour m market polic cies have a significant positive efffect on the e probabilityy of a startt-up with 1 or more e mployees, while own-account workers are not significantly affectted. Passive e labour ma arket policiees, on the other o hand,, seem to decrease the t probab bility that a an unemplo oyed perso on will staart an entrepreneuriall endeavourr as an ow wn-account worker w (effe fect margina ally signific cant in bothh models, two-sided p < .10), with h there bein ng no significant effect on start-ups s with employees. V. POLICY Y RECOMME ENDATIONS S endations ba ased on the e results prresented abbove, we would w like to o Before outtlining policyy recomme state that our recom mmendations s focus so lely on how w specific types of e ntrepreneurship (from m ment to nasscent entrep preneurship p with emplo oyees and without) w aree influenced by passive e unemploym and active labour marrket policy expenditure e es. It should d be noted that t such poolicies may have otherr effects beyyond the inffluence on nascent en ntrepreneurial behaviou urs, such ass impacts on o health orr social asp pects. Desp pite the narrrow focus in this po olicy brief, we w neverthheless have e gained a number of interesting insights. First of all,, these resu ults suggest that the tw wo categories of nasce ent entrepreeneurs diffe er markedlyy in their ressponses to labour ma arket policie es. For own n-account workers, w ressults show that active e labour ma arket policies have no n significa ant overall effect on entreprenneurial activ vity of the e unemploye ed, whereas passive labour marrket policies s reduce th he entrepreeneurial acttivity of the e unemploye ed. For sta art-ups with at leastt one emp ployee, how wever, we no impactt of policyy expenditurres on passsive labou ur market p policies; wiith regard to active llabour marrket policy,, however, e entrepreneu urial activity appears to o be fostered. . From th he view of ppolicy asses ssment, thiss is a generally optimiistic finding g – and on ne that goe es against the recentt recommen ndations off scholars such as Rom mán et al (2 2013) or Th hurik et al (2008). Put differently, we find ev vidence thatt active labo our market policies can n stimulate entreprene eurship and therefore rrepresent an importantt policy tooll for mitiga ating the problem p of high unem mployment levels in E Europe, inc cluding the e phenomen non of youth h unemploym ment. As mentioned above, start-up incentives w within Euro opean countries constiitute on av verage onlyy 0.03% of G GDP and th herefore cu urrently com mprise only a very small share off active lab bour markett policies (0.77% of GD DP). Passiv ve labour m market policy y expenditu ures, on thee other hand d, make up p on averag ge 1.14% of o the GDP P. (e.g., Hö örisch et al. a 2014). When W comppared to th he findingss presented in this poliicy brief, these numbe ers reveal that t perhaps more cann be done in terms off - EU UROPEA ANPOL LICYBRIIEF - Page|8 investing in active labour marke et policies, such as sttart-up ince entives, as one possib ble route to o promoting entreprene eurship as a means to ffighting (you uth) unemployment. As the leve els of unem mployment have h grown over the la ast five yearrs, policy m makers have e increasing g focused th heir attention on entrep preneurship p as a prom mising appro oach to redducing unem mployment.. We have been able e to confirrm previou us findings (e.g., Koe ellinger annd Minniti 2009) thatt unemploym ment benefiits tend to decrease d n ascent entrrepreneursh hip of the uunemployed d. However,, this was trrue only for the entrepreneurially active unem mployed wh ho do not pplan to emp ploy anyone e else. On the other ha and, and contrary to B Berglann et al. (2011)), we find a positive influence off active labo eurial activity that inte our market policies on n entreprene ends to empploy others s. This mayy suggest th hat not on nly start-up p subsidiess, but also o other measures foocused on improving g employabillity of the po opulation, such s as train ning measu ures, can su upport entreepreneurial efforts. e Our studyy has three e major implications ffor labour market pollicies with the goal of o fostering g entreprene eurship amo ong the une employed: 1. Firsst, the analyses show that labourr market po olicies are much m more than a cos st factor forr Eurropean cou untries. In addition a to ttheir importtant econom mic and soccial functions, tailored d exp penditures for f active la abour marke et policies may m help to o promote nnew busines ss start-upss funded by the younger ge enerations a and to foste er youth entrrepreneurshhip. olicies app pear to ha ave some unexpecte ed positive e 2. Seccond, activve labour market po externalities and a thus could c be a promising g part of policy p progrrammes in European n untries aiming to figh ht unemplo oyment by stimulating entreprenneurship by y additionall cou inve estments in n start-up incentives as well as s by incorporating enttrepreneurs ship related d asp pects in job training. Fo or instance,, recent pap pers by Fres se and colleeagues (Gla aub, Frese,, Fisher and Ho oppe 2014; Gielnik, F Frese et al. 2015) demonstrate the usefuln ness of job b training promo otion action--based apprroaches and personal initiative. 3. Third, the young unemplo oyed (18 to o 24) are a particularly y vulnerablee group, as s evidenced d u ment rates a and low lev vels of entre epreneurial activity. We W howeverr by their high unemploym e highest le evels of enttrepreneuria al activity among a the young uneemployed between the e see age es of 25 an nd 34. Starrt-up progra ammes tailo ored to the needs of tthis target group thuss havve the potential for hig gh impact. F For example e, it is often n difficult foor young persons of alll age es to obtain n the financing and loa ans needed to establish h a businesss. Policy programmess offe ering financcial supporrt for young g people fo or business ses is a m means to fo oster youth h enttrepreneurship. From the t analyse es of entrep preneurship p promotionn in this policy brief, itt can n be concluded that it appears to be more effective e to providde young people p with h sub bsidies that support the eir activitiess within the labour mark ket. Such a pproaches seem to be e pro omising wayys of supp porting them m in the developmen d nt of skills,, maintainin ng positive e attitudes and habits h regarrding work, and some may even go g on to staart business ses that willl gro ow and emp ploy others in the future e. - EU UROPEA ANPOL LICYBRIIEF - Page|9 REFEREENCES Adams, J. & Thomas, R. 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COORDINA ATOR ale Tosun, U University of Heidelberg, H Heidelberg, H G Germany, Prof. Dr. Ja jale.tosun@ @ipw.uni-hei delberg.de CONSORTIU UM epartment off Political Science and G overnment – Aarhus, Aarhus Universitet – De Denmark European Research an nd Project Offfice GmbH – Eurice – Saarbrücke en, Germanyy Koc Univerrsity – Deparrtment of Psy ychology – Is stanbul, Turkkey Közep-Eurropai Egyete m – Departm ment of Politic cal Science – Budapest, Hungary Ruprecht-K Karls Universsität Heidelbe erg – Institutte of Politicall Science – Heidelberg, H Germany ad de Granad da – Departm ment of Deve elopmental annd Education nal Universida Psychology y, Departme ent of Researrch Methods of Psychologgy, Department of Didactics of o Language and Literature – Granada, Spain of Economiccs and Business, Università degli Studi d di Catania – Department D Departmen nt of Educatio on – Catania a, Italy Universitatt Pompeu Fa abra – Deparrtment of Political and Soocial Sciences, Barcelona,, Spain Universitätt Bern – Insti tute of Politic cal Science Universitätt Mannheim – MZES – Mannheim, M Ge ermany Universitätt Wien – Dep partment of Economic E So ociology – Vieenna, Austria a University of Newcastle e Upon Tyne e – School off Geography,, Politics and d Sociology – Newcastle, UK Vysok Sko ola Ekonomiccka v Praze – DCBV/DMP PS – Praguee, Czech Rep public FUNDING SSCHEME ework Progra amme for Re esearch of the European Union – Collaborative FP7 Frame project Social Scie ences and H umanities. DURATION N February 2014 2 – Janua ary 2018 (48 months). - EU UROPEA ANPOL LICYBRIIEF - P a g e | 13 BUDGET EU contribution: 4 999 220 €. WEBSITE www.cupes sse.eu FOR MORE ale Tosun, ja ale.tosun@ip pw.uni-heidelberg.de. Contact: Ja INFORMAT TION FURTHER R READING Arndt, C. & Hörisch, F. (2015): Flex xicurity policiies in Europee – Diffusion and Effects of flexicuritty labour marrket policies.. CUPESSE Working Papper No. 2. CUPESSE Working Pa aper Series, Heidelberg. Hörisch, F.. & Weber, J . (2014): Capitalizing the e Crisis? Expplanatory Fac ctors for the Design of Short-time S W Work across Organisation O n for Econom mic Co-operattion and Developme ent Countriess. Social Pollicy & Adminiistration 48(77): 799-825. Kittel, B., Mühlböck, M M.., Steiber, N.. & Warmuth, J.R. (2014)): Research Designs. D Deliverable e 1.3 of the C CUPESSE-project. Working Paper, U University of Vienna. V Tosun, J., Jensen, C., S Speckesser,, S. & O’Reillly, J. (2015): The Absorp ption of a Investme ent Funds an nd Youth Unemploymentt: An Empiric cal Test. Structural and Paper pres sented at the e 2nd EU Coh hesion Policy y Conferencees, University y of Latvia in Riga, 4-6 February F 201 15. Tosun, J. (2015): ( Juge ndarbeitslosigkeit und Be eschäftigunggspolitik in de er EU. Aus Politik und Zeitgeschich hte 65(4-5): 12-19. http://www.bpb.de/apuzz/198887/jug gendarbeitslo osigkeit-und--beschaeftigu ungspolitikin-der-eu Warmuth, J.R., J Kittel, B B., Steiber, N. N & Mühlböc ck, M. (2015)): Cultural Pa athways to Economic Self-Sufficien ncy and Entrrepreneurshiip. An Overvview of Theorretical Perspectiv ves on Microm mechanisms s. CUPESSE Working Paaper No. 1. CUPESSE C Working Pa aper Series, Heidelberg. - EU UROPEA ANPOL LICYBRIIEF View publication stats P a g e | 14