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International Entrepreneurship and Management Journal

Erschienen in:

01.06.2015

Business cycles, unemployment and entrepreneurial entry—evidence from Germany

verfasst von: Michael Fritsch, Alexander Kritikos, Katharina Pijnenburg

Erschienen in: International Entrepreneurship and Management Journal | Ausgabe 2/2015

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Abstract

We investigate whether people are more willing to become self-employed during boom periods or during recessions and to what extent business cycles and unemployment levels influence entries into entrepreneurship. Our analysis for Germany reveals that there is a positive relationship between unemployment rates and start-up activities. Moreover, new business formation is higher during recessions than in boom periods, implying that it is counter-cyclical. When disentangling periods of low and high unemployment we find that the effect of unemployment on new business formation is only statistically significant if the level of unemployment is below the trend, indicating a “low unemployment retain effect”.

Vorheriger Artikel Entrepreneurship and business cycles: technological innovations and unemployment

Nächster Artikel New firm registration and the business cycle

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See also Blanchflower (2000) for an earlier approach.

This implies the assumption that there are no longer time lags between the decision to start an own business and putting this decision into practice.

Although there are a number of reasons to assume that the business cycle affects the level of new business formation, there may also be a causal relationship in the opposite direction, i.e. that start-ups have an effect on the business cycle. While an effect of demand or unemployment on the level of new business formation may occur with a considerable time lag, one may expect that new business formation is a leading time series if start-ups influence the business cycle. Koellinger and Thurik (2012) found first evidence for such an effect. We restrict our analysis, however, on effects of the business cycle on new business formation.

Obviously, using net-entry as indicator for new business formation risks mismeasurement as the following examples show. If we assume exits from self-employment to be s over time, then the net-entry would be a perfect substitute for full entry. The same dynamics in net-entries could, however, occur if the number of entries is constant and only the number of exits varies over the business cycle.

See Oberlander (2004). There are no statistics on start-ups by these groups.

Data access was provided on-site at the Federal Statistical Office in Erfurt.

The Micro-Census was started in 1957 as an annual survey of private households and persons in West Germany and was expanded to include East German states in 1991. The aim of this study is to collect nationally representative micro-data about the population structure, economic and social situation of individuals and households.

All numbers taken from the Micro-Census are extrapolated to the entire population in the respective spatial unit (Federal level or States) using the weights provided by the Federal Statistical Office.

The north comprises the Federal States of Bremen, Hamburg, Lower Saxony, and Schleswig-Holstein. Baden-Wuerttemberg and Bavaria make the southern region. East is the territory of the former socialist German Democratic Republic (GDR) plus the former West Berlin and includes the Federal States of Berlin, Brandenburg, Mecklenburg-Pomerania, Saxony, Saxony-Anhalt, and Thuringia. The western region comprises Hesse, North Rhine-Westphalia, Rhineland-Palatinate, and Saarland.

Using other plausible values of the HP filter parameter does not lead to any fundamental change of the results.

This corresponds well to the observation made for a number of countries that the levels of new business formation, at a national and at a regional level, tends to persist over longer periods of time. For analyses at a national level see Congregado, Golpe and Parker (2012) and Parker, Congregado and Golpe (2012). Investigations at the regional level include Andersson and Koster (2011), Fotopoulos (2014) and Fritsch and Wyrwich (2014).

Endogeneity arising from simultaneity between entrepreneurship and economic output is also addressed by using vector autoregressive models (VAR) (Koellinger and Thurik (2012); Plehn-Dujowich (2012)). While our first data source (business registrations) has too few observations for panel-VAR models, our second data source (the Micro-Census) has a time dimension which is sufficiently long for VAR models. We present the results of our VAR and a panel-VAR estimation in section Estimation results and robustness checks.

The Hausman test suggests that the application of the random effects estimation procedure would be inappropriate.

Since the GDP data for Länder are only available on a yearly basis, there are not enough cases in our data to allow for this type of analysis for deviations from the GDP trend.

Results for the positive deviations are not presented in Table 3 due to their non-significance.

A VAR model of order one has the following form: × _t = a ₁ × _t-1 + ε _t , where x _t is the vector of endogenous variables (entries into self-employment, unemployment rate and interest rates), and a ₁ represents the vector of coefficients.

For the panel-VAR estimation in Stata, we use the pvar.ado file created by Inessa Love (Love and Zicchino, 2006).

Fairlie (2013) finds for U.S. Metropolitain Statistical Areas that higher unemployment rates increase the probability to start businesses. Koellinger and Thurik (2012) in their investigation of 22 OECD countries over the 1972–2007 period identify a positive effect of unemployment on business ownership rates.

Such an analysis has been conducted on the relationship between entrepreneurship and unemployment for various OECD countries (see Faria, Cuestas and Mourelle, 2010).

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Titel: Business cycles, unemployment and entrepreneurial entry—evidence from Germany
verfasst von: Michael Fritsch
Alexander Kritikos
Katharina Pijnenburg
Publikationsdatum: 01.06.2015
Verlag: Springer US
Erschienen in: International Entrepreneurship and Management Journal / Ausgabe 2/2015
Print ISSN: 1554-7191
Elektronische ISSN: 1555-1938
DOI: https://doi.org/10.1007/s11365-014-0326-3

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